united states district court for the district of … sandler infobytes... · civil action no....

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

CONFERENCE OF STATE BANK SUPERVISORS, Plaintiff, v. OFFICE OF THE COMPTROLLER OF THE CURRENCY, and KEITH A. NOREIKA, in his official capacity as Acting Comptroller of the Currency, Defendants.

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Civil Action No. 17-CV-00763 (JEB)

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANTS’

MOTION TO DISMISS FOR LACK OF JURISDICTION AND FAILURE TO STATE A CLAIM

AMY S. FRIEND Senior Deputy Comptroller and

Chief Counsel CHARLES M. STEELE Deputy Chief Counsel KAREN SOLOMON Deputy Chief Counsel GREGORY F. TAYLOR Assistant Director of Litigation DOUGLAS B. JORDAN PETER C. KOCH ASHLEY W. WALKER GABRIEL A. HINDIN Office of the Comptroller of the Currency 400 7th Street S.W. Washington, D.C. 20219

Case 1:17-cv-00763-JEB Document 8-2 Filed 07/28/17 of 52

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TABLE OF CONTENTS Page(s)

TABLE OF AUTHORITIES ........................................................................................................ iii

INTRODUCTION ......................................................................................................................... 1

BACKGROUND ........................................................................................................................... 3

A. General Background .......................................................................................................... 3

B. OCC Chartering Procedures .............................................................................................. 4

C. The Alleged “Nonbank Charter Decision” ........................................................................ 5

1. The 2003 Regulation ............................................................................................. 6

2. OCC Policy Initiatives Related to Responsible Innovation and the Agency’s Chartering Authority: 2015-2017 .......................................................................... 7

a. Former Comptroller Curry’s December 2016 Speech ..................................... 7

b. SPNB White Paper (December 2016) .............................................................. 8

3. Acting Comptroller Noreika’s Speech To The Exchequer Club: July 19, 2017 .......................................................................................................... 9

ARGUMENT ................................................................................................................................ 9 I. BECAUSE CSBS FAILS TO SHOW COGNIZABLE HARM TO ITSELF OR TO ITS

MEMBERS CAUSED BY ANY OCC ACTION, CSBS LACKS ARTICLE III STANDING AND THIS COURT LACKS JURISDICTION OVER THE COMPLAINT ......................... 9

II. OCC’S PUBLIC STATEMENTS DO NOT REPRESENT FINAL AGENCY ACTION .... 13

A. Because the OCC Has Not Completed Its Decision-making Process, the First Bennett Test Is Not Satisfied ......................................................................................................... 14

1. The December 2016 Speech ................................................................................ 14

2. The SPNB White Paper ....................................................................................... 15

3. The Exchequer Speech ......................................................................................... 16 B. Because OCC’s Actions Have Not Affected Rights or Obligations or Resulted in

Legal Consequences, the Second Bennett Test is Not Satisfied ................................ 17 III. THIS MATTER IS NOT RIPE FOR JUDICIAL REVIEW AND SHOULD THEREFORE BE DISMISSED ............................................................................................ 18 IV. THE OCC HAS NOT ISSUED ANY LEGISLATIVE RULE SPECIFIC TO THE

CHARTERING OF FINTECH COMPANIES THAT WOULD REQUIRE NOTICE AND COMMENT ........................................................................................................................... 20


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V. ALTERNATIVELY, THE COMPLAINT SHOULD BE DISMISSED FOR FAILURE TO STATE A CLAIM BECAUSE THE OCC REASONABLY INTERPRETED THE AMBIGUOUS NATIONAL BANK ACT TERM “THE BUSINESS OF BANKING” ...... 22

A. Because the Statutory Text Has No Plain Meaning Under

Chevron Step One, the OCC Has Discretion In Reasonably Interpreting that Text ... 23

1. In NationsBank, the Supreme Court Recognized the OCC’s Authority to Interpret the Ambiguous Term “Business of Banking” ................................. 25

2. The D.C. Circuit Has Confirmed the OCC’s Authority to Issue a Limited

Purpose National Bank Charter ..................................................................... 28

B. Under Chevron Step II, the OCC Reasonably Interpreted the Statutory Term “Business of Banking” by Reference to Three Core Banking Activities Identified in the National Bank Act ................................................................................................ 30

VI. CSBS FAILS IN ITS ARGUMENTS THAT THE OCC LACKS STATUTORY AND

CONSTITUTIONAL AUTHORITY TO ISSUE A SECTION 5.20(e)(1) CHARTER ...... 33

A. CSBS’S Statutory Construction Arguments Lack Merit .......................................... 35

1. Judicial Authority And Statutory Context Defeat CSBS’s Expressio Unius

Argument ...................................................................................................... 35

2. CSBS Errs in Relying On Statutes Other than the National Bank Act .................................................................................................................. 37

B. The Judicial Authority Cited by CSBS Is Not Entitled to Weight ........................... 38

C. Neither the Legislative History of the National Bank Act Nor Historical Understanding Contradicts the OCC’s Interpretation .............................................. 40

D. Neither Section 5.20(e)(1) Nor any Charter Issued Under Section 5.20(e)(1) in the

Future Would Violate the Supremacy Clause or the Tenth Amendment .............................................................................................................. 42

CONCLUSION ............................................................................................................................ 43


iii

TABLE OF AUTHORITIES

Cases

Abbott Labs. v. Gardner, 387 U.S. 136 (1967) ............................................................................................................. 13, 18

Adirondak Medical Ctr. v. Sebelius, 740 F.3d 692 (2014) ................................................................................................................... 37

Ahuja v. Detica Inc., 742 F. Supp. 2d 96 (D.D.C. 2010) ............................................................................................... 2

Am. Freedom Defense Initiative v. Lynch, 217 F. Supp. 3d 100 (D.D.C. 2016) ........................................................................................... 10

Am. Ins. Ass’n v. Clarke, 865 F.2d 278 (D.C. Cir. 1988) ................................................................................................... 27

Am. Land Title Ass’n v. Clarke, 743 F. Supp. 491 (W.D. Tex. 1989) ........................................................................................... 19

Am. Petroleum Inst. v. EPA, 683 F.3d 382 (D.C. Cir. 2012) ............................................................................................. 18, 19

Am. Textile Mfrs. Inst., Inc. v. Donovan, 452 U.S. 490 (1981) ................................................................................................................... 21

American Mining Cong. v. Mine Safety & Health Admin., 995 F. 2d 1106 (D.C. Cir. 1993) ................................................................................................ 21

Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir. 1972) ...................................................................................................... 27

Ass’n of Flight Attendants v. Huerta, 785 F.3d 710 (D.C. Cir. 2015) ................................................................................................... 21

AT&T v. EEOC, 270 F.3d 973 (D.C. Cir. 2001) ....................................................................................... 13, 15, 16

Barnett Bank of Marion Co. v. Nelson, 517 U.S. 25 (1996) ..................................................................................................................... 42

Barnhart v. Peabody Coal Co., 537 U.S. 149 (2003) ................................................................................................................... 35

Bd. of Governors of the Fed. Reserve Sys. v. Dimension Fin. Corp., 474 U.S. 361 (1986) ................................................................................................................... 39

Bennett v. Spear, 520 U.S. 154 (1997) ............................................................................................................. 13, 16

Camp v. Pitts, 411 U.S. 138 (1973) ..................................................................................................................... 5

Cheney R.R. Co. v. ICC, 902 F.2d 66 (D.C. Cir. 1990) ..................................................................................................... 37

Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984) ............................................................................................................... 3, 23

Ciba–Geigy Corp. v. EPA, 801 F.2d 430 (D.C. Cir.1986) .................................................................................................... 13

Clarke v. Sec. Indus. Ass’n, 479 U.S. 388 (1987) ........................................................................................... 23, 26, 31, 32, 34


iv

Clement Nat’l Bank v. Vermont, 231 U.S.120 (1913) .................................................................................................................... 25

Clinchfield Coal Co. v. Fed. Mine Safety & Health Review Comm’n, 895 F.2d 773 (D.C. Cir. 1990) ................................................................................................... 36

Colorado Nat’l Bank v. Bedford, 310 U.S. 41 (1940) ..................................................................................................................... 25

Covad Commc’ns Co. v. Bell Atl., 407 F.3d 1220 (D.C. Cir. 2005) ................................................................................................... 2

CSBS v. Conover, 710 F.2d 878 (D.C. Cir. 1983) .............................................................................................. 11, 42 CSBS v. Lord,

532 F. Supp. 694 (D.D.C. 1982) ................................................................................................ 11 Ctr. for Auto Safety v. Nat’l Highway Traffic Safety Admin.,

452 F.3d 798 (D.C. Cir. 2006) ................................................................................................... 15 Cuomo v. Clearing House,

557 U.S. 519 (2009) ................................................................................................................... 23 Cuzzo Speed Tech, LLC v. Lee,

136 S.Ct. 2132 (2016) .......................................................................................................... 22, 23 Fidelity Fed. Sav. & Loan Ass’n v. De La Cuesta,

458 U.S. 141 (1982) ................................................................................................................... 42 First Nat’l Bank in Plant City v. Dickinson,

396 U.S. 122 (1969) ................................................................................................................... 33 First Nat’l Bank of Charlotte v. National Exch. Bank,

92 U.S. 122 (1876) ..................................................................................................................... 25 First Nat’l Bank of Eastern Arkansas v. Taylor,

907 F.2d 775 (8th Cir. 1990) ...................................................................................................... 27 Florida Bankers Ass’n v. U.S. Dept. of the Treasury,

19 F. Supp. 3d 111 (D.D.C. 2014) ............................................................................................. 11 Franklin Nat’l Bank v. New York,

347 U.S. 373 (1954) ............................................................................................................. 25, 42 Fund for Animals, Inc. v. Bureau of Land Mgmt.,

460 F.3d 13 (D.C. Cir. 2006) ..................................................................................................... 14 Gen. Dynamics Land Sys., Inc. v. Cline,

540 U.S. 581 (2004) ................................................................................................................... 37 Gustave-Schmidt v. Chao,

226 F. Supp. 2d 191 (D.D.C. 2002) ............................................................................................. 2 Harris v. FAA,

353 F.3d 1006 (D.C. Cir. 2004) ................................................................................................. 12 In re Science Applications Int’l Corp. (SAIC) Backup Tape Data Theft Litig.,

45 F. Supp. 3d 14 (D.D.C. 2014) ............................................................................................... 12 Indep. Bankers Ass’n of Am. v. Conover, 1985 U.S. Dist. Lexis 22529 (M.D. Fla. 1985) ..................................................................... 28, 38 Indep. Cmty. Bankers Ass’n of South Dakota, Inc. v. Bd. of Governors of the Fed. Reserve Sys.,

820 F.2d 428 (D.C. Cir. 1987) ................................................................................................... 28 Indus. Ass’n v. Clarke,

885 F. 2d 1034 (2d Cir. 1989) .................................................................................................... 27


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Int’l Acad. of Oral Medicine & Toxicology v. F.D.A., 195 F. Supp. 3d 243 (D.D.C. 2016) ........................................................................................... 11

Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) ................................................................................................................... 10

M&M Leasing Corp. v. Seattle First Nat’l Bank, 563 F.2d 1377 (9th Cir. 1977) ................................................................................................ 3, 27

Martini v. Fed. Nat’l Mortg. Ass’n, 178 F. 3d 1336 (D.C. Cir. 1999) ................................................................................................ 37

Marx v. General Revenue Corp., 133 S.Ct. 1166 (2013) ................................................................................................................ 36

Mercantile Nat’l Bank v. City of N.Y., 121 U.S. 138 (1887) ................................................................................................................... 41

Merchants’ Bank v. State Bank, 77 U.S. 604 (1870) ..................................................................................................................... 25

Mobile Commc’n Corp. of Am. v. FCC, 77 F.3d 1399 ............................................................................................................................... 37

Mylan Pharm., Inc. v. F.D.A., 789 F. Supp. 2d 1 (D.D.C. 2011) ............................................................................................... 12

N.Y. Stock Exch. v. Bloom, 562 F.2d 736 (D.C. Cir. 1977) ................................................................................................... 19

NationsBank of North Carolina, N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251 (1995) ............................................................................................................ Passim

Nat’l Mining Ass’n v. McCarthy, 758 F.3d 243 (D.C. Cir. 2014) ............................................................................................. 20, 21

Nat’l Park Hosp. Ass’n v. Dep’t of Interior, 538 U.S. 803 (2003) ................................................................................................................... 18

Nat’l Parks Conservation Ass’n v. Norton, 324 F.3d 1229 (D.C. Cir. 2003) ................................................................................................. 11

Nat’l State Bank of Elizabeth, N.J. v. Smith, No. 76-1479 (D.N.J. 1977) ................................................................................................. 36, 38 Nat’l State Bank of Elizabeth, N.J. v. Smith, 591 F.2d 223, 227 (3d Cir. 1979) ........................................................................................ 36, 38 Nat’l Treasury Emps. Union v. United States,

101 F.3d 1423 (D.C. Cir. 1996) ................................................................................................. 18 NLRB v. Fed. Labor Relations Auth.,

834 F.2d 191 (D.C. Cir. 1987) ................................................................................................... 13 Oconus DOD Employee Rotation Action Grp. v. Cohen,

140 F. Supp. 2d 37 (D.D.C. 2001) ............................................................................................. 16 Oulton v. German Savings & Loan Society,

84 U.S. 109 (1872) ..................................................................................................................... 41 Pacific Gas & Elec. Co. v. Fed. Power Comm’n,

506 F.2d 33 (D.C. Cir. 1974) ..................................................................................................... 21 Peoples Nat’l Bank v. OCC,

362 F.3d 333 (5th Cir. 2004) ................................................................................................ 14, 17 Pub. Citizen Health Research Grp. v. FDA,

740 F.2d 21 (D.C. Cir. 1984) ..................................................................................................... 19


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Smiley v. Citibank (South Dakota, 517 U.S. 735 (1996) ............................................................................................................. 22, 42

Spannaus v. U.S. Dep’t of Justice, 824 F.2d 52 (D.C. Cir. 1987) ..................................................................................................... 13

Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) ............................................................................................................... 12

Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83 (1998) ..................................................................................................................... 10

U.S. v. Cleveland Indians Baseball Co., 532 U.S. 200 (2001) ................................................................................................................... 37

U.S. Ecology, Inc. v. U.S. Dep’t of Interior, 231 F.3d 20 (D.C. Cir. 2000) ..................................................................................................... 10

U.S. v. Mead Corp., 533 U.S. 218 (2001) ................................................................................................................... 23

U.S. v. Philadelphia Nat’l Bank, 374 U.S. 321 (1963) ................................................................................................................... 42

U.S. v. Vonn, 535 U.S. 55 (2002) ..................................................................................................................... 35

Village of Barrington v. Surface Transp. Bd., 636 F.3d 650 (D.C. Cir. 2011) ................................................................................................... 20

Watters v. Wachovia Bank, N.A., 550 U.S. 1 (2007) ....................................................................................................................... 42

Whitmore v. Arkansas, 495 U.S. 149 (1990) ................................................................................................................... 12

Yates v. U.S., 135 S. Ct. 1074 (2015) ............................................................................................................... 37

Zuckerberg v. D.C. Bd. of Elections & Ethics, 999 F. Supp. 2d 79 (D.D.C. 2013) ....................................................................................... 18, 19

Statutes

5 U.S.C. § 553 ............................................................................................................................... 20 5 U.S.C. § 704 ......................................................................................................................... 13, 20 5 U.S.C. § 706(2)(A)................................................................................................................. 5, 20 12 U.S.C. § 1 ............................................................................................................................. 3, 25 12 U.S.C. § 1(a) .............................................................................................................................. 4 12 U.S.C. § 21 ......................................................................................................... 4, 23, 30, 32, 33 12 U.S.C. § 22 ............................................................................................................................... 33 12 U.S.C. § 22(Second) ................................................................................................................ 33 12 U.S.C. § 24 ............................................................................................................................... 23 12 U.S.C. § 24(Seventh) ........................................................................... 24, 25, 26, 27, 29, 30, 36 12 U.S.C. § 26 ......................................................................................................................... 23, 30 12 U.S.C. § 27 ........................................................................................................................ Passim

12 U.S.C. § 36 ................................................................................................... 6, 12, 24, 31, 32, 33 12 U.S.C. § 36(j) ..................................................................................................................... 31, 33 12 U.S.C. § 81 ................................................................................................................... 24, 31, 32


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12 U.S.C. § 93a ............................................................................................................................... 4 12 U.S.C. § 1831p-1 ....................................................................................................................... 8 12 U.S.C. § 1841 ......................................................................................................... 30, 34, 36, 37 28 U.S.C. § 2401(a) ................................................................................................................ 12, 13 Competitive Equality Banking Act of 1987, Pub. L. No. 100-86, 101 Stat. 552 ................... 30, 39 Internal Revenue Act of 1866, ch. 184, 14 Stat. 98 (1866) .................................................... 40, 41

Rules

Fed.R.Evid. 201(b) .......................................................................................................................... 2

Regulations

12 C.F.R. Part 5........................................................................................................................... 4, 5 12 C.F.R. pts. 3, 5, 6, 7, 9, 28, and 34, 5, 6, 7, 9, 28, and 34 .......................................................... 6 12 C.F.R. § 5.20(d)(3) ..................................................................................................................... 5 12 C.F.R. § 5.20(e)(1) ............................................................................................................ Passim

Rules, Policies, and Procedures for Corporate Activities; Bank Activities and Operations; Real Estate Lending and Appraisals, 68 Fed. Reg. 6363 (Feb. 7, 2003) ................................................................................................. 6

Rules, Policies, and Procedures for Corporate Activities; Bank Activities and Operations; Real Estate Lending and Appraisals, 68 Fed. Reg. 70122 (Dec. 17, 2003) ............................................................................................ 6

Other Authorities

2A Sutherland Statutory Construction § 47:25 ............................................................................. 35 68 Fed. Reg. 6363 (Feb. 7, 2003) (Feb. 7, 2003) ........................................................................ 2, 6 68 FR 70122 (Dec. 17, 2003) (Dec. 17, 2003) ......................................................................... 6, 13 Citicorp, 67 Fed. Res. Bull. 181 (1982) ........................................................................................ 29 Fein, Federal Bank Holding Company Law § 5.02[2][g] (3d Ed. 2017) ..................................... 39 Wright & Miller, FEDERAL PRACTICE AND PROCEDURE: Civil 3d § 1366, pp. 182-86 ..... 2


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INTRODUCTION

The Complaint by the Conference of State Bank Supervisors (“CSBS”) represents a

fatally premature attempt to invoke the jurisdiction of this Court to remedy a speculative harm

that CSBS alleges may arise from future action by the Office of the Comptroller of the Currency

(“OCC”) – action that the OCC may never take. The CSBS Complaint challenges: 1) an OCC

regulation amended in 2003 to authorize special purpose charters that has, to date, never been

used to charter a bank; and 2) a series of public OCC statements as part of an ongoing policy

initiative that, based upon a clearly erroneous reading of the public record, CSBS alleges to be a

final decision by the OCC to make charters available to “nonbank” financial technology

(“fintech”) companies. CSBS’s denomination of these public statements as a “Nonbank Charter

Decision,” Compl. ¶ 52, is wrong in two fundamental respects: it ignores that the proposal

contemplates a form of national bank charter and that no final decision has been reached.

The Court should conclude that none of the allegations contained in the Complaint

presents either a justiciable case or controversy under the Constitution or a reviewable final

agency action under the Administrative Procedure Act. Stated succinctly, the OCC has not yet

reached any decision with respect to whether it will offer the type of national bank charter —

referred to hereinafter as a “5.20(e)(1) Charter”1 — that is the subject of the present challenge.

As noted recently by Acting Comptroller of the Currency Keith A. Noreika, the OCC is actively

exploring different approaches to leveraging its authority to charter national banks that would

allow the banking sector to take advantage of new ideas and new technology. See Keith A.

1 While the OCC charters various types of Special Purpose National Banks (“SPNBs”) with limited purpose operations, see Comptroller’s Licensing Manual, Charters (Sept. 2016) (“Charters Booklet” or “CB”) (attached hereto as “Exhibit B”) at 1, CSBS is only challenging the subset of national banks defined for the purpose of this brief as 5.20(e)(1) Charters.


2

Noreika, Acting Comptroller, the Office of the Comptroller of the Currency, Exchequer Club

Remarks (July 19, 2017) (“Exchequer Speech”) (attached hereto as Exhibit A). While the OCC

is studying all aspects of the issue, it is clear that the OCC has made no final decision whether it

will make a 5.20(e)(1) Charter available. Ex. A at 9. Acting Comptroller Noreika has clarified

for the public record that the OCC is not accepting applications for this type of fintech charter at

this time and, if a decision were made to proceed, an application for a 5.20(e)(1) Charter would

be subject to a thorough and public review process.

In short, nothing approaching what CSBS has labeled in their Complaint as the OCC’s

“Nonbank Charter Decision” has occurred. Given the scant record2 to date, including the

2 In deciding whether to dismiss a claim under Rule 12(b)(6), a court may consider (1) the facts alleged in the complaint, (2) documents attached as exhibits or incorporated by reference in the complaint, and (3) matters about which a court may take judicial notice. See, e.g., Ahuja v. Detica Inc., 742 F. Supp. 2d 96, 102 (D.D.C. 2010); Gustave-Schmidt v. Chao, 226 F. Supp. 2d 191, 196 (D.D.C. 2002). A court may take judicial notice of a fact “not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b); see also Wright & Miller, FEDERAL PRACTICE AND PROCEDURE: Civil 3d § 1366, pp. 182-86 (noting “items of unquestioned authenticity that are referred to in the challenged pleading and are ‘central’ or ‘integral’ to the pleader’s claim for relief” are not considered matters outside the pleadings for purposes of converting a motion to dismiss into a motion for summary judgment). Defendant’s Exhibits B, E, F, G, H, I, and J are documents that are either attached to, referred to, or relied upon in the Complaint or its exhibits. The Court may take judicial notice of Defendants’ Exhibit A, which is a publicly available speech made by Acting Comptroller Keith A. Noreika on July 19, 2017 (available at https://www.occ.gov/news-issuances/speeches/2017/pub-speech-2017-82.pdf). The Court may take judicial notice of Defendants’ Exhibit C, which is a comment letter submitted by CSBS to the OCC on April 3, 2003, regarding a Notice of Proposed Rulemaking, published by the OCC at 68 Fed. Reg. 6363 (Feb. 7, 2003). The Court may take judicial notice of Defendants’ Exhibit D, which is a publicly available speech made by former Comptroller Thomas J. Curry on August 7, 2015 (available at https://www.occ.gov/news-issuances/speeches/2015/pub-speech-2015-111.pdf). The Court may take judicial notice of Defendants’ Exhibit K, which is a docket sheet from the U.S. District Court for the Middle District of Florida. See Covad Commc’ns Co. v. Bell


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absence of allegations of cognizable harm in the Complaint and the as-yet interlocutory process

embarked upon by the OCC to determine the position that it may eventually take, the Court

should conclude that the facts as alleged do not present a justiciable controversy. Accordingly,

the Court should dismiss CSBS’s Complaint.

In the alternative, should the Court reach the merits of the OCC’s authority to promulgate

12 C.F.R. § 5.20(e)(1), the Complaint should be dismissed because the OCC’s authoritative

interpretation of the ambiguous statutory term “the business of banking” is entitled to deference

under the Chevron3 framework and is supported by Supreme Court and D.C. Circuit authority.

The OCC’s exploration of mechanisms that could enable national banks to provide financial

technology services to customers rests comfortably within the long legacy of the evolution of

national bank powers endorsed by the Ninth Circuit in 1977: “[W]hatever the scope of

[incidental bank] powers may be, we believe that the powers of national banks must be construed

so as to permit the use of new ways of conducting the very old business of banking.” M&M

Leasing Corp. v. Seattle First Nat’l Bank, 563 F.2d 1377, 1382 (9th Cir. 1977).

BACKGROUND

A. General Background

The OCC is an independent bureau of the U. S. Department of the Treasury with primary

supervisory responsibility over national banks under the National Bank Act of 1864, codified at

12 U.S.C. § 1 et seq., as amended. The OCC is charged with assuring that national banks (and

other institutions subject to its jurisdiction) operate in a safe and sound manner and in

Atl. Co., 407 F.3d 1220, 1222 (D.C. Cir. 2005) (court may take judicial notice of facts contained in public records of other proceedings). 3 Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984).


4

compliance with applicable laws and regulations and that they offer fair access to financial

services and provide fair treatment of customers. 12 U.S.C. § 1(a). The OCC’s activities (in

furtherance of its mission) include receiving applications for and determining whether to grant

new national bank charters to associations formed to carry out the “business of banking.” See,

e.g., 12 U.S.C. §§ 21, 26, 27. Under Section 27(a), the OCC may grant a charter “[i]f . . . it

appears that such association is lawfully entitled to commence the business of banking” and that

“such association has complied with all provisions required to be complied with before

commencing the business of banking, and that such association is authorized to commence such

business.” “[T]he Comptroller of the Currency is authorized to prescribe rules and regulations to

carry out the responsibilities of the office.” 12 U.S.C. § 93a.

B. OCC Chartering Procedures The OCC’s chartering regulations, set forth at 12 C.F.R. Part 5 (“Part 5”), provide a

thorough and public process for receiving and considering applications for national bank

charters. The OCC’s procedures for implementing its chartering regulations are collected in the

Comptroller’s Licensing Manual, Charters (Sept. 2016) (“Charters Booklet” or “CB”) (attached

hereto as “Exhibit B”).

Under its statutory authorities, the OCC may charter new national banks to undertake

either “full service” or more limited “special purpose” operations. Ex. B at 1. A full-service

bank generally exercises broad express and implied powers consistent with its charter. Id. at 50.

In contrast, special purpose banks may offer only a small number of products, target a limited

customer base, or have narrowly targeted business plans. Id. Banks with special purpose

operations may include “trust banks, credit card banks, bankers’ banks, community development

banks, cash management banks, and other banks that limit their activities.” Id. at 1. As


5

discussed more fully below, Part 5 was amended in 2003 to clarify the OCC’s interpretation of

its authority to charter a “special purpose bank.” See 12 C.F.R. § 5.20(e)(1) (a “bank may be a

special purpose bank that limits its activities to fiduciary activities or any other activities within

the business of banking.”).

Applications for all national bank charters are submitted to the OCC’s Licensing Division

and are processed in accordance with the OCC’s regulations found at 12 C.F.R. Part 5. The

application process is initiated by publishing a newspaper notice of the application, followed by

receipt of public comments. The OCC reviews each application on a case-by-case basis to

determine whether statutory and regulatory requirements have been met. Ex. B at 1, 4. If the

application is successful, the OCC grants charters in two steps: a preliminary conditional

approval and then a final approval. Id at 3. Prior to final approval, the OCC generally requires

the organizers to raise capital within 12 months and open within 18 months of a grant of

preliminary conditional approval. Id. If the organizers receive final approval, the OCC will

issue a charter and the new bank can commence the business of banking. Id. at 3, 39, 48; 12

C.F.R. § 5.20(d)(3).4

C. The Alleged “Nonbank Charter Decision”

In an attempt to manufacture a final agency action that is subject to judicial review, i.e. a

final decision by the OCC to grant a 5.20(e)(1) Charter, CSBS draws upon speeches by the

Comptroller of the Currency, agency “white papers,” a draft amendment to an OCC manual, and

the adoption of a regulation in 2003 to construct what CSBS calls the “Nonbank Charter

4 An OCC decision on a charter application is a final agency action subject to judicial review. See Camp v. Pitts, 411 U.S. 138, 141-42 (1973) (“The appropriate standard for review was, accordingly, whether the Comptroller's adjudication was ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,’ as specified in 5 U.S.C. § 706(2)(A).”).


6

Decision.” Compl. ¶ 52. Neither the 2003 regulation nor the agency statements relied upon by

CSBS provide the necessary foundation for their claims.

1. The 2003 Regulation

In 2003, the OCC amended its chartering regulations to clarify its interpretation of its

authority to charter a “special purpose bank.” 68 Fed. Reg. 70122 (Dec. 17, 2003). Among the

amendments initially proposed by the OCC in February 20035 was an amendment to Section

5.20(e)(1) providing that a newly organized bank “may be a special purpose bank that limits its

activities to fiduciary activities or to any other activities within the business of banking.” 68 Fed.

Reg. 6363, 6373 (Feb. 7, 2003). In the Final Rule,6 published on December 17, 2003, the OCC

clarified the scope of activities permissible for a special purpose bank to respond to commenters’

concerns that the proposed amendment was too broad and that the special purpose charter had

the potential to extend to activities “only loosely related to banking.” 68 Fed. Reg. 70122, 70126

(Dec. 17, 2003).7 The final rule clarified that “[a] special purpose bank that conducts activities

other than fiduciary activities must conduct at least one of the following three core banking

functions: receiving deposits; paying checks; or lending money.” Id. at 70129. The OCC

5 See Rules, Policies, and Procedures for Corporate Activities; Bank Activities and Operations; Real Estate Lending and Appraisals, 68 Fed. Reg. 6363 (Feb. 7, 2003) (proposed to be codified at 12 C.F.R. pts. 3, 5, 6, 7, 9, 28, and 34). 6 See Rules, Policies, and Procedures for Corporate Activities; Bank Activities and Operations; Real Estate Lending and Appraisals, 68 Fed. Reg. 70122 (Dec. 17, 2003) (codified at 12 C.F.R. pts. 3, 5, 6, 7, 9, 28, and 34). 7 CSBS submitted a comment letter dated April 8, 2003 (attached hereto as Exhibit C) asking for “additional clarification on the OCC’s plans for expanding limited purpose national bank powers . . . to avoid a perception that the OCC is availing the national bank charter to a group of entities not conducting core banking activities.” Ex. C at 2.


7

explained that these core banking functions were based on 12 U.S.C. § 36, “which identifies

activities that cause a facility to be considered a bank branch.” Id. at 70126.

Since adopting this amendment, the OCC has not used its authority under 12 C.F.R.

§ 5.20(e)(1) to issue a national bank charter to a special purpose national bank (“SPNB”) of the

type that is identified in the Complaint: an institution that conducts non-fiduciary activities and

does not receive deposits. More fundamentally, the OCC has not yet received any applications

for a 5.20(e)(1) Charter, nor has it yet reached a final decision regarding whether the agency will

ultimately make a 5.20(e)(1) Charter available to a fintech. See infra p. 10.

2. OCC Policy Initiatives Related to Responsible Innovation and the Agency’s Chartering Authority: 2015-2017

The OCC’s decision to consider whether to use its chartering authority to bring fintechs

into the national banking system emerged out of a broader initiative, launched in 2015 by

Comptroller of the Currency Thomas J. Curry. This initiative is aimed at determining how the

OCC could support responsible innovation in the financial services industry. See Thomas J.

Curry, Former Comptroller, The Office of the Comptroller of the Currency, Remarks for Federal

Home Loan Bank of Chicago (Aug. 7, 2015) (attached hereto as Exhibit D).8

a. Former Comptroller Curry’s December 2016 Speech

On December 2, 2016, Comptroller Curry announced that “the OCC will move forward

with chartering financial technology companies that offer bank products and services and meet

our high standards and chartering requirements.” Thomas J. Curry, Former Comptroller, the

8 In March 2016, the OCC published Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective (attached hereto as Exhibit E) describing a vision for responsible innovation in the federal banking system and inviting public feedback. On October 26, 2016, the OCC announced the establishment of its Office of Innovation, a central point of contact related to innovation beginning in 2017. Recommendations and Decision for Implementing a Responsible Innovation Framework (Oct. 2016) (attached hereto as Exhibit F).


8

Office of the Comptroller of the Currency, Remarks at Georgetown University Law Center:

Special Purpose National Bank Charters for Fintech Companies (Dec. 2, 2016) (“December

Speech”) (attached hereto as Exhibit G) at 3 (emphasis in original). Indicating that this initiative

was still in its formative stage, Comptroller Curry “asked [OCC] staff to develop and implement

a formal agency policy for evaluating applications for fintech charters.” Id. at 5.

b. SPNB White Paper (December 2016)

In tandem with Comptroller Curry’s December 2016 speech, the OCC published a white

paper titled Exploring Special Purpose National Bank Charters for Fintech Companies (Dec.

2016) (“SPNB White Paper”) (attached hereto as Exhibit H). The SPNB White Paper

summarizes conditions under which the OCC might grant an SPNB charter to a fintech. Id. at 2.9

The OCC solicited public feedback on the SPNB White Paper. Id. at 15-16. In March 2017, the

OCC published OCC Summary of Comments and Explanatory Statement: Special Purpose

National Bank Charters for Financial Technology Companies (Mar. 2017) (“Explanatory

Statement”) (attached hereto as Exhibit J). The Explanatory Statement reviewed more than 100

public comments that the OCC received on the SPNB White Paper on topics such as consumer

protection, regulatory and supervisory standards, and the separation of banking and commerce.

Id.

9 The SPNB White Paper addressed how such charters “could advance important policy objectives, such as enhancing the ways in which financial services are provided in the 21st century, while ensuring that new fintech banks operate in a safe and sound manner, support their communities, promote financial inclusion, and protect customers.” The SPNB White Paper reviewed the various federal and state law standards that would be applicable to fintech SPNBs and explained how the OCC could impose other requirements on SPNBs as conditions of charter approval, such as the safety and soundness standards found at 12 U.S.C. § 1831p-1. Ex. H at 5-6. The paper also outlined baseline supervisory expectations. Ex. H at 8-13.


9

3. Acting Comptroller Noreika’s Speech to the Exchequer Club: July 19, 2017

On July 19, 2017, Acting Comptroller Noreika summarized the Agency’s efforts to date

in the area of fintech and “responsible innovation” in the Exchequer Speech. Acting Comptroller

Noreika expressed his views about the “idea of granting national bank charters to fintech

companies that are engaged in the business of banking and requiring them to meet the high

standards for receiving a charter.” Ex. A at 4. He said: “Quite simply, I think it is a good idea

that deserves the thorough analysis and the careful consideration we are giving it.” Id. at 5.

Crucially, however, he clearly indicated that the OCC had not received any applications for

nondepository fintech charters, i.e. Section 5.20(e)(1) Charters, and that the precise course that

the OCC will pursue with this type of charter remains under consideration:

[A]t this point the OCC has not determined whether it will actually accept or act upon applications from nondepository fintech companies for special purpose national bank charters that rely upon [Section 5.20(e)(1)]. And, to be clear, we have not received, nor are we evaluating, any such applications from nondepository fintech companies.

Id. at 9. As possible alternatives to a de novo charter under Section 5.20(e)(1), the Acting

Comptroller suggested that the OCC might consider addressing fintech innovation using

full-service national bank and federal savings association charters, or other special purpose

national bank charters, such as trust banks, banker’s banks, and credit card banks. Id.

ARGUMENT

I. BECAUSE CSBS FAILS TO SHOW COGNIZABLE HARM TO ITSELF OR TO ITS MEMBERS CAUSED BY ANY OCC ACTION, CSBS LACKS ARTICLE III STANDING AND THIS COURT LACKS JURISDICTION OVER THE COMPLAINT

The Court should dismiss this case because CSBS has not and cannot make the showing

of standing necessary to meet the “case or controversy” requirement of Article III of the

Constitution. Because neither the relevant provisions of Section 5.20(e)(1) nor the series of OCC


10

public statements identified in the Complaint has had any cognizable real-world effect on

anyone, including the members of CSBS, CSBS cannot show, as required, any injury-in-fact

caused by the OCC’s actions that would be redressed by the requested relief.

The “irreducible constitutional minimum” for standing contains three requirements. Steel

Co. v. Citizens for a Better Env’t, 523 U.S. 83, 102-103 (1998). “First and foremost,” a plaintiff

must allege an “injury in fact – a harm suffered by the plaintiff that is concrete and actual or

imminent, not conjectural or hypothetical.” Id. at 103 (internal quotations omitted). “Second,

there must be causation – a fairly traceable connection between the plaintiff’s injury and the

complained-of conduct of the defendant.” Id. “And third, there must be redressability – a

likelihood that the requested relief will redress the alleged injury.” Id. “This triad of injury in

fact, causation and redressability constitutes the core of Article III’s case-or-controversy

requirement, and the party invoking federal jurisdiction bears the burden of establishing its

existence.” Id. at 103-04 (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)); see

also Am. Freedom Defense Initiative v. Lynch, 217 F. Supp. 3d 100, 103-104 (D.D.C. 2016). “A

deficiency on any one of the three prongs suffices to defeat standing.” U.S. Ecology, Inc. v. U.S.

Dep’t of Interior, 231 F.3d 20, 24 (D.C. Cir. 2000).

Here, CSBS has not and cannot establish any of these requirements because the OCC has

yet to take any relevant action that could have a concrete effect of any kind. No tangible effect

on CSBS or CSBS’s members could even arguably occur until a 5.20(e)(1) Charter has been

issued to a specific applicant. This has not happened. No Section 5.20(e)(1) Charter has been

issued (i.e., to a non-deposit taking, non-trust bank) in the nearly 14 years since the promulgation

of the regulation. See Ex. A at 9. No applications for such an institution have been received by

the OCC. Id. No final procedures for processing such an application by the OCC are in place.


11

Each of the OCC’s public statements in 2016 and 2017 identified in the Complaint were part of

ongoing policy development that has not yet become final. Id.

When and if an application is received, the application would require agency

consideration which would entail a public comment process before any preliminary or final

approval would be possible. Again, there is no current or near-term prospect that an application

for a 5.20(e)(1) Charter will come under active agency consideration, let alone the more distant

possibility that an applicant would actually commence the business of banking under such a

charter. Accordingly, CSBS has not and cannot meet its burden of showing a “concrete” “actual

or imminent” injury-in-fact, and a fortiori cannot show causation or redressability.

CSBS makes no attempt to show10 how the three-part test for standing is satisfied by the

“harms” asserted in the Complaint, each of which is vague, future-oriented, and speculative:

The “Nonbank Charter Decision triggers significant risks to traditional areas of state concern,” Compl. ¶ 92;

The Nonbank Charter Decision “threatens to disrupt” the “integrity and stability of the U.S. dual banking system and bank regulation,” id. at ¶ 93;

10 The Complaint’s only statement as to standing is a claim to associational standing on behalf of its members. Compl. ¶ 15, citing CSBS v. Lord, 532 F. Supp. 694 (D.D.C. 1982), aff’d CSBS v. Conover, 710 F.2d 878 (D.C. Cir. 1983). The Complaint makes no attempt to show how its members themselves satisfy the three-part test for standing, as CSBS must to establish its associational standing. See Nat’l Parks Conservation Ass’n v. Norton, 324 F.3d 1229, 1243-1244 (D.C. Cir. 2003); Int’l Acad. of Oral Medicine & Toxicology v. F.D.A., 195 F. Supp. 3d 243, 263 (D.D.C. 2016). In Lord, a final OCC regulation addressing adjustable rate mortgages had a preemptive effect on state laws and thus an actual ongoing effect upon CSBS members. 532 F. Supp. at 695-696; see also CSBS v. Conover, 710 F.2d at 880-881. This Court found associational standing in a case where plaintiff’s members were “directly regulated by the regulation being challenged” and “suffering from additional, allegedly unlawful reporting requirements, causing them injury.” Florida Bankers Ass’n v. U.S. Dept. of the Treasury, 19 F. Supp. 3d 111, 120 (D.D.C. 2014), judgment vacated on other grounds by 799 F.3d 1065 (D.C. Cir. 2015). Here, in contrast, any adverse effect on CSBS members would not be felt unless and until a 5.20(e)(1) Charter is issued. Accordingly, CSBS fails to make the necessary showing that the claimed harms satisfy the necessary requirements for standing.


12

The OCC’s actions “impede the states’ ability to continue their existing regulation of financial service companies within their borders and to enforce state laws designed to protect the consuming public and ensure the safety or soundness of nondepository companies,” and creates difficulties in detecting unlicensed activity, id. at ¶ 94; and

The “Decision creates conflicts with state law and threatens to preempt state sovereign interests,” id. at ¶¶ 96-98.

The assertion that any of these effects will come to pass can only conceivably become true

sometime in the future if and when the OCC issues a 5.20(e)(1) Charter and specific harm can be

identified; the alleged harms are now merely hypothetical. Cf. Mylan Pharm., Inc. v. F.D.A., 789

F. Supp. 2d 1, 6-10 (D.D.C. 2011) (no standing where drug approval process had not reached

even tentative approval). “A ‘concrete’ injury must be de facto; that is, it must actually exist.”

Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1548 (2016). CSBS has averred no such existing injury.

“Allegations of possible future injury do not satisfy the requirements of Article III. A threatened

injury must be certainly impending to constitute injury in fact.” In re Science Applications Int’l

Corp. (SAIC) Backup Tape Data Theft Litig., 45 F. Supp. 3d 14, 24 (D.D.C. 2014) (emphasis in

original) (quoting Whitmore v. Arkansas, 495 U.S. 149 (1990)).

At this stage, attempting to draw legal conclusions regarding any potential for harm to

CSBS in granting a 5.20(e)(1) Charter is an exercise in speculation: no applications are pending,

and potential applicants may vary widely in the nature of their business models, including the

location of the activity and the identity of competitors. The time for assessing whether and

which CSBS members have been actually harmed will be after a charter application has been

approved. In the absence of constitutional standing, the Complaint should be dismissed for lack

of jurisdiction.11

11 An additional basis for dismissing the Complaint’s facial challenge to the relevant provisions of Section 5.20(e)(1) is that the cause of action is time-barred by the statute of limitations


13

II. OCC’S PUBLIC STATEMENTS DO NOT REPRESENT FINAL AGENCY ACTION The majority of the OCC “actions” that the CSBS attempts to aggregate into what they

call the “Nonbank Charter Decision” are, at bottom, nothing more than a collection of non-final

policy papers and solicitations for input from the public that, whether considered separately or

collectively, do not represent a “final agency action” subject to review under the Administrative

Procedure Act (“APA”), 5 U.S.C. § 704. Under the APA, judicial review is limited to “[a]gency

action made reviewable by statute and final agency action for which there is no other adequate

remedy in a court.” 5 U.S.C. § 704; Abbott Labs. v. Gardner, 387 U.S. 136, 140 (1967). Agency

action is final when it “mark[s] the consummation of the agency’s decision-making process,” and

is one “by which rights or obligations have been determined, or from which legal consequences

will flow.” Bennett v. Spear, 520 U.S. 154, 177-78 (1997) (internal citations and quotation

applicable to civil actions against the United States. “Except as provided [in the Contract Disputes Act of 1978], every civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues.” 28 U.S.C. § 2401(a). A cause of action under the APA accrues on the date of the final agency action. Harris v. FAA, 353 F.3d 1006, 1010 (D.C. Cir. 2004). “Unlike an ordinary statute of limitations, § 2401(a) is a jurisdictional condition attached to the government’s waiver of sovereign immunity, and as such must be strictly construed.” Spannaus v. U.S. Dep’t of Justice, 824 F.2d 52, 55 (D.C. Cir. 1987). Here, if the Final Rule constituted final agency action, the cause of action under the APA accrued on January 16, 2004 when the Final Rule became effective. 68 FR 70122 (Dec. 17, 2003). Accordingly, the time for filing a facial challenge to the regulation expired in January 2010, and this Court lacks jurisdiction over the cause of action. On the other hand, if the regulation is used to issue a 5.20(e)(1) Charter, the statute of limitations will not act to bar an as-applied challenge to the regulation. NLRB v. Fed. Labor Relations Auth., 834 F.2d 191, 195-96 (D.C. Cir. 1987). To the extent CSBS argues that the cause of action did not accrue at the time the Final Rule became effective because it was, while final, not “final agency action,” CSBS tacitly concedes that the regulation is not yet final agency action reviewable under the APA, because nothing has happened with respect to the regulation since 2004.


14

marks omitted).12 Because neither of the Bennett requirements is here satisfied, the Complaint

should be dismissed for failure to state a claim.

A. Because the OCC Has Not Completed Its Decision-Making Process, the First Bennett Test Is Not Satisfied

CSBS alleges that Comptroller Curry’s December Speech and the OCC SPNB White

Paper reflect that the OCC reached a “final decision” in December 2016 to grant 5.20(e)(1)

Charters to fintech companies. Compl. ¶¶ 52-57. This is simply not the case. The OCC public

statements relied upon by CSBS instead demonstrate that the OCC’s decision-making process is

still under way.

1. The December 2016 Speech

CSBS allegations that the OCC decisional process “culminated” in the December Speech,

Ex. G, and the publishing of the SPNB White Paper, Ex. H, Compl. ¶¶ 52-56, see supra pp. 7-8,

are refuted by the statements themselves. In the December Speech, Comptroller Curry stated:

We have published a paper today discussing several important issues associated with the approval of a national bank charter, and we are seeking stakeholder comment to help inform our path forward. Your comments will help us ensure that the agency’s chartering decisions promote the safety and soundness of the federal banking system, increase financial inclusion, and protect consumers from abuse. I hope the professors and legal minds studying here will take the opportunity to read the paper and provide your thoughts.

12 To be final, an agency must state an “unequivocal position,” Ciba–Geigy Corp. v. EPA, 801 F.2d 430, 436 (D.C. Cir.1986), rather than one contingent on future agency actions. AT&T v. EEOC, 270 F.3d 973, 975 (D.C. Cir. 2001). Thus, “[t]he agency must have made up its mind, and its decision must have inflicted an actual, concrete injury upon the party seeking judicial review.” Id. (citations omitted). Conversely, agency action is not final when it “does not of itself adversely affect [a] complainant but only affects his rights adversely on the contingency of future administrative action.” Peoples Nat’l Bank v. OCC, 362 F.3d 333, 337 (5th Cir. 2004); see also Fund for Animals, Inc. v. Bureau of Land Mgmt., 460 F.3d 13, 22 (D.C. Cir. 2006).


15

Ex. G at 3. Far from indicating consummation of any final agency action, the former

Comptroller made clear that the OCC was actively seeking comments to inform the OCC’s path

forward. At the same time, Comptroller Curry emphasized that: (1) staff was being directed to

“develop” and “implement” a formal agency policy; (2) the OCC was in the process of

requesting comments on the SPNB White Paper; and (3) those comments would inform the

development of the OCC’s policy. This context establishes that the former Comptroller’s

statement that the OCC “will move forward with chartering financial technology companies,”

Ex. G at 3, is a statement of intention to move forward with next steps, not an announcement that

a decision had been reached. These statements confirm that the OCC’s decision-making process

was still unfolding in December 2016.

2. The SPNB White Paper

A review of the SPNB White Paper, Ex. H, also published on December 16, 2016, further

refutes CSBS’s arguments. See, e.g., Compl. ¶¶ 57-58; see supra pp. 7-8. A review of the

SPNB White Paper reflects that the Agency’s decision-making process was still incomplete in

December 2016. For example, in the preface, the SPNB White Paper is intended to explore

“what the OCC considers to be necessary conditions if the OCC is to exercise that authority.”

Ex. H at 1.13 The SPNB White Paper further requested “feedback on all aspects of this paper”

and solicited responses to 13 questions to assist the OCC in policy formulation. Id. Again, the

13 To the extent that CSBS contends the OCC’s interpretation of 12 C.F.R. § 5.20(e)(1) constitutes final agency action, Compl. ¶¶ 55, 68, 69, courts have found such an argument unavailing. See, e.g., Ctr. for Auto Safety v. Nat’l Highway Traffic Safety Admin., 452 F.3d 798, 808 (D.C. Cir. 2006) (citation and internal quotations omitted) (“the case law is clear that we lack authority to review claims under the APA where an agency merely expresses its view of what the law requires of a party, even if that view is adverse to the party”); AT&T Co. v. EEOC, 270 F.3d 973, 976 (D.C. Cir. 2001) (“The Commission has not inflicted any injury upon AT&T merely by expressing its view of the law”).


16

request by the OCC for feedback from stakeholders on a wide range of issues about whether to

grant 5.20(e)(1) Charters makes clear that no final decision had yet been made.14

3. The Exchequer Speech

Acting Comptroller Noreika’s July 19, 2017 Exchequer Speech further confirmed the

indeterminate status of the OCC’s thinking on the 5.20(e)(1) Charters. “[A]t this point the OCC

has not determined whether it will actually accept or act upon applications from nondepository

fintech companies for special purpose national bank charters that rely upon [Section 5.20(e)(1)].”

Ex. A at 9. As possible alternatives to a de novo charter under Section 5.20(e)(1), the Acting

Comptroller suggested that the OCC might consider addressing fintechs using full-service

national bank and federal savings association charters, or recognized special purpose national

bank charters, such as trust banks, banker’s banks, and credit card banks. Id. Accordingly, the

OCC has demonstrably not “made up its mind,” AT&T, 270 F.3d at 975, has not consummated

its decision-making process, and has not yet engaged in reviewable final agency action.

14 CSBS further alleges, incorrectly, that two publications issued by the OCC in March 2017, the Draft Supplement to the Comptroller’s Licensing Manual (“Draft Supplement”) (attached hereto as Exhibit I) and the Explanatory Statement, Ex. J, show that the OCC completed its decision-making process concerning SPNB charters for fintechs. Compl. ¶¶ 67-76. As with the December Speech and the SPNB White Paper, however, these publications demonstrate, by their draft form and conditional language, that the Agency had neither reached a final decision nor implemented a fintech chartering program. As CSBS concedes, the OCC invited public comment on the Draft Supplement, Compl. ¶ 74, which shows that it was still under development. See, e.g., Oconus DOD Employee Rotation Action Grp. v. Cohen, 140 F. Supp. 2d 37, 43-44 (D.D.C. 2001) (draft subchapter of personnel manual not final agency action because it was still in process of being developed). As explained in its introduction, the Explanatory Statement “addresses key issues raised by commenters” regarding the SPNB White Paper. Ex. J at 1. It also “explains the OCC’s decision to issue for public comment” the Draft Supplement. Id.


17

B. Because OCC’s Actions Have Not Affected Rights or Obligations or Resulted in Legal Consequences, the Second Bennett Test Is Not Satisfied

In order to be final, the agency action must also have had an effect on rights or

obligations or caused legal consequences. Bennett v. Spear, 520 U.S. 154, 177-78. Here, even if

the OCC had completed its decision-making process – and it has not – no legal consequences

have flowed from the OCC’s actions to date because no 5.20(e)(1) Charter has been issued.

See Peoples Nat’l Bank v. OCC, 362 F.3d 333 (5th Cir. 2004) (bank challenge to OCC banking

bulletin limiting the scope of OCC Ombudsman review of examination ratings).15 As in Peoples

Nat’l Bank, CSBS “simply takes issue with the idea that” the OCC might issue a 5.20(e)(1)

Charter at some future date. Id. at 337. CSBS alleges several legal consequences that might in

the future flow from an OCC decision to issue such charters.16 As in Peoples Nat’l Bank,

however, these consequences, even if they later come true, could potentially affect CSBS’s rights

adversely only “on the contingency of future administrative action,” id., an actual grant of a

15 In Peoples Nat’l Bank, the Fifth Circuit held that there was no reviewable final agency action because the bank had not utilized the appeal process and, as a consequence, the newly-issued bulletin had not been applied to the bank. 362 F.3d at 337. Instead, as the court noted, the bank “simply takes issue with the idea that such an appeal will be governed by” the new bulletin. Id. The court found that the new bulletin would affect the bank’s “rights adversely only on the contingency of future administrative action.” Id. (internal quotation marks omitted). 16 See, e.g., Compl. ¶ 4 (“OCC’s actions will have significant economic consequences”); id. at ¶ 5 (OCC’s alleged decision “would pull chartered nonbank fintech companies into the national banking regulatory system, potentially preempting and replacing the licensing, regulation, and supervision responsibilities of state authorities”); id. at ¶ 11 (“OCC’s creation of this nonbank charter program will allow chartered entities to operate outside the bounds of existing state regulation.”); id. ¶ 93 (OCC’s alleged action “threatens to disrupt” U.S. dual banking system); id. at ¶ 94 (speculating that “companies facing or at risk of state enforcement actions could escape state enforcement authority by obtaining a national charter”); id. at ¶ 95 (guessing that “one reason that nonbank companies may seek a special purpose national charter from the OCC would be to avoid compliance with existing state laws.”); id. at ¶ 96 (OCC’s action “threatens to preempt state sovereign interests”).


18

5.20(e)(1) Charter. At this time, however, no such charters have even preliminarily been

granted. Accordingly, as in Peoples Nat’l Bank, any alleged chartering decision “should not be

reviewed by a court until it has been utilized and resulted in a final agency action.” Id.

III. THIS MATTER IS NOT RIPE FOR JUDICIAL REVIEW AND SHOULD THEREFORE BE DISMISSED

The Court should also conclude that this matter is not yet ripe for judicial review because

no final agency action has taken place. Ripeness, at its core, “is about whether a federal court

‘can or should decide a case.’” Zuckerberg v. D.C. Bd. of Elections & Ethics, 999 F. Supp. 2d

79, 83 (D.D.C. 2013) (quoting Am. Petroleum Inst. v. EPA, 683 F.3d 382, 386 (D.C. Cir. 2012)).

Even where standing exists under Article III, there may still be “prudential reasons for refusing

to exercise jurisdiction.” Nat’l Park Hosp. Ass’n v. Dep’t of Interior, 538 U.S. 803, 808

(2003).17 Courts assess the prudential ripeness of a case based on a two-prong inquiry: (1) the

“fitness of the issues for judicial decision” and (2) the “extent to which withholding a decision

will cause ‘hardship to the parties.’” Am. Petroleum Inst., 683 F.3d at 387 (quoting Abbott

Labs., 387 U.S. at 149). Because CSBS cannot satisfy either prong of this test, the case should

be dismissed.

The first prong, fitness, turns on, among other things, “whether the agency’s action is

sufficiently final.” Am. Petroleum Inst., 683 F.3d at 387 (citation omitted). For the reasons

17 In the context of agency decision-making, the purpose of prudential ripeness is to prevent courts from wasting resources “by prematurely entangling [them]selves in abstract disagreements” and “to protect the other branches from judicial interference until their decisions are formalized and their ‘effects felt in a concrete way by the challenging parties.’” Nat’l Treasury Emps. Union v. U.S., 101 F.3d 1423, 1431 (D.C. Cir. 1996) (quoting Abbott Labs., 387 U.S. at 148-49); see also Am. Petroleum Inst., 683 F.3d at 386 (prudential ripeness lets the administrative process finish before binding parties, prevents courts from entanglement in abstract disagreements over administrative policies, and protects agencies from judicial interference in ongoing decision-making).


19

already addressed supra pp. 8, 15-16, the OCC’s inquiry regarding whether to offer a 5.20(e)(1)

Charter is still ongoing. More to the point, the OCC has not received any charter application

invoking this authority. By any measure, whatever agency “action” that may exist at this point is

certainly not final and, therefore, not yet fit for review. See N.Y. Stock Exch. v. Bloom, 562 F.2d

736, 740-43 (D.C. Cir. 1977) (challenge to opinion letters of Comptroller of the Currency not

ripe for review because opinions contained therein were tentative and not final); see also Am.

Land Title Ass’n v. Clarke, 743 F. Supp. 491, 492-99 (W.D. Tex. 1989) (interpretive letters

issued by the OCC did not announce a final agency position and were not ripe for judicial

review).

Under the second prong, hardship, the “institutional interests in the deferral of review”

are only outweighed where the hardship caused by that deferral is “immediate and significant.”

Am. Petroleum Inst., 683 F.3d at 389. Further, considerations of any hardship that may flow

from such a deferral “will rarely overcome the finality and fitness problems inherent in attempts

to review tentative positions.” Id. (quoting Pub. Citizen Health Research Grp. v. FDA, 740 F.2d

21, 31 (D.C. Cir. 1984)). Here, CSBS will not suffer any immediate or significant hardship if

this Court were to delay review of this matter. On the contrary, as explained supra pp. 11-12, 17

n.16, CSBS tacitly admits that it has not suffered any actual, concrete injury from any of the

challenged OCC actions. In the absence of any conceivable concrete hardship, this matter is not

yet ripe for judicial review. See Zuckerberg, 999 F. Supp. 2d at 85–86 (challenge to city council

act that was not yet in effect not ripe for review because it imposed no concrete hardship and its

impact was not sufficiently direct and immediate).


20

IV. THE OCC HAS NOT ISSUED ANY LEGISLATIVE RULE SPECIFIC TO THE CHARTERING OF FINTECH COMPANIES THAT WOULD REQUIRE NOTICE AND COMMENT CSBS also errs in its argument that the OCC has engaged in improper rulemaking by

failing to comply with the APA’s notice and comment procedures and by failing to conduct a

cost-benefit analysis when the OCC issued its Draft Supplement, Ex. I, and SPNB White Paper,

Ex. H, and invited informal feedback.18 See Compl. ¶¶ 83-87, 107-110 (Count III). Count III

fails at the outset because, as already explained, see supra, p. 16 & n.14, neither document

constitutes final agency action: they are part of a still evolving decision-making process and are

not indicative of any final action, including a legislative rule where notice and comment would

be required. 19 Even if the Draft Supplement and SPNB White Paper were final agency actions –

which they are not – CSBS’s argument would fail because it is erroneously premised on the

notion that the documents create a “legislative rule” rather than a general statement of policy to

which notice-and-comment requirements do not apply.20 “Legislative rules generally require

18 In the background section of the Complaint, where it first alleges an improper rulemaking, CSBS refers to the OCC’s alleged reliance on “its white paper and Manual Supplement and invitations for informal feedback.” Compl. ¶ 83. Despite the Complaint’s early reference to the OCC’s March 2016 paper Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective as a “white paper,” see, e.g., Compl.¶ 47, the OCC construes the rulemaking-related allegations as well as Count III as a whole to refer to the SPNB White Paper, Ex. H. 19 CSBS also asserts that the series of OCC public statements identified in the Complaint are arbitrary, capricious, and an abuse of discretion. See Compl. ¶¶ 88-91, 111-114 (Count IV). This claim fails for the same reason that Count III fails: only final agency actions are subject to judicial review under the APA’s arbitrary and capricious standard. 5 U.S.C. §§ 704, 706. Accordingly, Count IV should be dismissed for failure to state a claim. 20 The OCC followed notice-and-comment procedures when promulgating the 2003 amendment to 12 C.F.R. § 5.20(e)(1) and does not understand Count III to argue otherwise. As for CSBS’s cost-benefit claim, it also fails because the APA’s arbitrary and capricious standard does not in itself require an agency to engage in cost-benefit analysis. Village of Barrington v. Surface Transp. Bd., 636 F.3d 650, 670-71 (D.C. Cir. 2011). Furthermore, CSBS fails to identify any other basis for inferring any obligation of the OCC to engage in cost-benefit analysis. See Am.


21

notice and comment, but interpretive rules and general statements of policy do not.” Nat’l

Mining Ass’n v. McCarthy, 758 F.3d 243, 251 (D.C. Cir. 2014) (citing 5 U.S.C. § 553); see also

Ass’n of Flight Attendants v. Huerta, 785 F.3d 710, 716 (D.C. Cir. 2015) (same). As the D.C.

Circuit has explained:

An agency action that purports to impose legally binding obligations or prohibitions on regulated parties—and that would be the basis for an enforcement action for violations of those obligations or requirements—is a legislative rule. An agency action that sets forth legally binding requirements for a private party to obtain a permit or license is a legislative rule. * * * An agency action that merely explains how the agency will enforce a statute or regulation—in other words, how it will exercise its broad enforcement discretion or permitting discretion under some extant statute or rule—is a general statement of policy.

McCarthy, 758 F.3d at 251-52; see also Huerta, 785 F.3d at 717 (same); Pacific Gas & Elec. Co.

v. Fed. Power Comm’n, 506 F.2d 33, 38 (D.C. Cir. 1974) (same). The “most important factor”

in differentiating between legislative rules and nonbinding actions such as a general statement of

policy is “the actual legal effect (or lack thereof) of the agency action in question.” Huerta, 785

F.3d at 717 (quoting McCarthy, 758 F.3d at 252); see also American Mining Cong. v. Mine

Safety & Health Admin., 995 F. 2d 1106, 1112 (D.C. Cir. 1993) (same).

The wording of a document is significant in determining whether it is a legislative rule or

a policy statement. “[A] document that reads like an edict is likely to be binding, while one

riddled with caveats is not.” Huerta, 785 F.3d at 717. As previously noted, the language used in

the SPNB White Paper is neither mandatory nor obligatory; it is indefinite and conditional. See

supra p. 16 n.14. Indeed, the document concludes with a “Request for Comment” seeking

feedback from stakeholders to assist the OCC in the decision-making process. See supra p. 15.

Textile Mfrs. Inst., Inc. v. Donovan, 452 U.S. 490, 510-512 & n.30 (1981) (“[w]hen Congress has intended that an agency engage in cost-benefit analysis, it has clearly indicated such intent on the face of the statute,” and has used “specific language” to express that intent).


22

Thus, the language used in the SPNB White Paper is incompatible with any notion that the

document creates definitive rights or imposes definitive obligations or limits in any way the

OCC’s discretion with respect to chartering decisions.

Therefore, taken together, the SPNB White Paper and Draft Supplement21 provide

nothing more than a first take on what may eventually be adopted as generalized guidance. This

is far from what the courts have previously construed to be a legislative rule. Accordingly,

Count III should be dismissed, in the alternative, for failure to state a claim.

V. ALTERNATIVELY, THE COMPLAINT SHOULD BE DISMISSED FOR FAILURE TO STATE A CLAIM BECAUSE THE OCC REASONABLY INTERPRETED THE AMBIGUOUS NATIONAL BANK ACT TERM “THE BUSINESS OF BANKING”

The absence of jurisdiction and nonexistence of final agency action prevent the Court

from reaching the merits of the validity of 12 C.F.R. § 5.20(e)(1). Even if this Court were to

reach the merits, however, the Complaint should be dismissed for failure to state a claim

because, under the Chevron framework, the Section 5.20(e)(1) regulation represents a reasonable

OCC interpretation of the undefined22 and ambiguous statutory term “business of banking.”

The Supreme Court has repeatedly applied the deferential Chevron framework to the

OCC’s interpretation of the terms of the National Bank Act. Cuomo v. Clearing House, 557 U.S.

519, 525 (2009); Smiley v. Citibank (South Dakota), 517 U.S. 735, 739 (1996); NationsBank of

North Carolina, N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 256-257 (1995); Clarke v.

21 The text of the Draft Supplement largely reiterates many licensing requirements already present in the Charters Booklet. Ex. B. To the extent the Draft Supplement proposes application procedures specific to fintechs, it is a draft document and is not evidence of an implemented policy. See supra, p. 16 n.14. Furthermore, the document is merely explanatory in nature. “This Supplement explains how the OCC will apply the licensing standards and requirements in its existing regulations and policies to fintech companies applying for an SPNB charter.” Id. at 2 (emphasis added). 22 CSBS concedes that the term “business of banking” is not “expressly defined.” Compl. ¶ 31.


23

Sec. Indus. Ass’n, 479 U.S. 388, 403-404 (1987). The Chevron framework proceeds in two

analytical steps. “Where a statute is clear, the agency must follow the statute.” Cuzzo Speed

Tech, LLC v. Lee, 136 S.Ct. 2132, 2142 (2016). “But where a statute leaves a ‘gap” or is

‘ambigu[ous],’ we typically interpret it as granting the agency leeway to enact rules that are

reasonable in light of the text, nature, and purpose of the statute.” Id. (citing U.S. v. Mead

Corp., 533 U.S. 218, 229 (2001); Chevron, USA, Inc. v. Natural Resources Defense Council,

Inc., 467 U.S. 837, 843 (1984)).

Here, because the National Bank Act does not establish a plain meaning for what it

means to be engaged in the “business of banking,” the OCC may address that ambiguity or “gap”

in the statute by enacting rules that are “reasonable in light of the text, nature, and purpose of the

statute.” Cuzzo Speed Tech, 136 S. Ct. at 2142. Applying this test, the OCC’s interpretation is

reasonable and entitled to deference under the Chevron doctrine: the OCC’s interpretation is not

precluded by statutory text, the OCC’s reading is supported by judicial authority — including

Supreme Court and D.C. Circuit precedent — and the OCC’s interpretation of the term is

consistent with the text, nature, and purpose of the statute. Accordingly, should the Court reach

the merits, the Complaint should be dismissed for failure to state a claim.

A. Because the Statutory Text Has No Plain Meaning Under Chevron Step One, the OCC Has Discretion In Reasonably Interpreting that Text

An examination of the relevant text of the National Bank Act makes clear that, under the

Chevron framework, the phrase “business of banking” is ambiguous, having no fixed meaning

that precludes the OCC’s interpretation set forth in the special purpose charter regulation, 12

C.F.R. § 5.20(e)(1). The term “business of banking” appears in several National Bank Act

provisions, without definition or textual elaboration that could add meaning. See 12 U.S.C. §§


24

21,23 26,24 27(b)(1)25 and 24(Seventh). In addition, a similar term, “the general business of each

banking association” is contained in a geographic restriction in 12 U.S.C. § 81.26 Section 27, the

general chartering provision, states:

If, upon a careful examination of the facts so reported, and of any other facts which may come to the knowledge of the Comptroller . . . it appears that such association is lawfully entitled to commence the business of banking, the Comptroller shall give to such association a certificate . . . that such association has complied with all the provisions required to be complied with before commencing the business of banking and that such association is authorized to commence such business.

12 U.S.C. § 27(a) (emphasis added). In addition to this general chartering authority, Section 27

also recognizes two forms of special purpose national banks: trust banks27 and “bankers’

23 “Associations for carrying on the business of banking may be formed by any number of natural persons, not less in any case than five.” 12 U.S.C. § 21. 24 “Whenever a certificate is transmitted to the Comptroller of the Currency, as provided in Title 62 of the Revised Statutes, and the association transmitting the same notifies the Comptroller that all of the capital stock has been paid in, and that such association has complied with all the provisions of title 62 of the Revised Statutes required to be complied with before an association shall be authorized to commence the business of banking ….” 12 U.S.C. § 26 (emphasis added). Section 26 goes on to make two other references to whether the bank has complied with requirements to entitle it to engage in the business of banking. 25 The Comptroller of the Currency may also issue a “certificate of authority to commence the business of banking” to [a bankers’ bank]. 12 U.S.C. § 27(b)(1) (emphasis added). 26 “The general business of each national banking association shall be transacted in the place specified in its organization certificate and in the branch or branches, if any, established or maintained by it in accordance with the provisions of section 36 of this title. 12 U.S.C. § 81 (emphasis added). 27 Trust bank: “A National Bank Association, to which the Comptroller has heretofore issued or hereafter issues such certificate, is not illegally constituted solely because its operations are or have been required by the Comptroller of the Currency to be limited to those of a trust company and activities related thereto.” 12 U.S.C. § 27(a). Notably, this text does not set forth a separate grant of chartering authority, but rather codifies deference to the Comptroller’s discretion to grant a charter under unspecified preexisting authority.


25

banks.”28 The National Bank Act does not set forth any mandatory activities that must be

performed in order for a bank to be engaged in the “business of banking.” Indeed, the text in

general is permissive and therefore consistent with an expansive grant of discretion in the

Comptroller to assign content to the phrase. Accordingly, there is nothing in the text of the

National Bank Act that precludes the OCC’s interpretation codified at 12 C.F.R. § 5.20(e)(1).

1. In NationsBank, the Supreme Court Recognized the OCC’s Authority to Interpret the Ambiguous Term “Business of Banking”

These statutory references to the “business of banking” have rarely been the subject of

litigation that has added interpretive meaning, with the exception of Section 24(Seventh), which

has been litigated throughout the history of the National Bank Act.29 Section 24(Seventh)

provides that national banks are authorized:

To exercise . . . all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes [and provisions limiting securities and stock sales].

12 U.S.C. § 24(Seventh) (emphasis added). The Supreme Court explicated this text definitively

in NationsBank of North Carolina, N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251 (1995).

In NationsBank, the OCC had interpreted the Section 24(Seventh) text to permit the Comptroller

28 Banker’s bank: The Comptroller of the Currency may also issue a “certificate of authority to commence the business of banking” to [a banker’s bank]. 12 U.S.C. § 27(b)(1) (emphasis added). 29 See, e.g., Merchants’ Bank v. State Bank, 77 U.S. 604 (1870) (power to certify checks); First Nat’l Bank of Charlotte v. National Exch. Bank, 92 U.S. 122 (1876) (power to purchase securities in the course of settling a claim); Clement Nat’l Bank v. Vermont, 231 U.S.120 (1913) (power to pay state taxes on depositors’ accounts); Colorado Nat’l Bank v. Bedford, 310 U.S. 41 (1940) (power to operate a safe deposit business); Franklin Nat’l Bank v. New York, 347 U.S. 373 (1954) (power to advertise).


26

to authorize national banks to sell annuities to bank customers. 513 U.S. at 254. That

interpretation was challenged by an insurance agents’ association that argued that the text should

instead be read to limit the scope of permissible banking powers under Section 24(Seventh) to

activities connected with the five statutorily enumerated powers: discounting, deposit-taking,

trading in exchange and money, lending, and dealing in notes. Under this theory, an implicit

expressio unius est exclusio alterius statutory structure argument, the general authorization to

“exercise . . . all such incidental powers as shall be necessary to the business of banking” would

be circumscribed by the succeeding text listing specific powers. 513 U.S. at 257-258. The

Supreme Court expressly and emphatically rejected that argument.

First, the Court reviewed the OCC’s interpretation through the framework of Chevron

deference. 513 U.S. at 256-57. “As the administrator charged with supervision of the National

Bank Act, see § 1, 26-27, 481, the Comptroller bears primary responsibility for surveillance of

the ‘business of banking’ authorized by § 24 Seventh.” 513 U.S. at 256.

It is settled that courts should give great weight to any reasonable construction of a regulatory statute adopted by the agency charged with the enforcement of that statute. The Comptroller of the Currency is charged with the enforcement of banking laws to an extent that warrants the invocation of this principle with respect to his deliberative conclusions as to the meaning of these laws.

Id. at 256-57 quoting Clarke v. Sec. Indus. Ass’n, 479 U.S. 388, 403-04 (1987).

Applying this standard of review, the Court affirmed the OCC’s construction of the

Section 24(Seventh) phrase “incidental powers . . . necessary to carry on the business of

banking” as an independent grant of authority, not limited by the specified enumerated grants of

authority, id. at 257, rejecting the argument by the insurance agents to the contrary:

We expressly hold that the ‘business of banking’ is not limited to the enumerated powers in § 24 Seventh and that the Comptroller therefore has discretion to authorize activities beyond those specifically enumerated. The exercise of the Comptroller’s


27

discretion, however, must be kept within reasonable bounds. Ventures distant from dealing in financial investment instruments – for example, operating a travel agency – may exceed those bounds.

Id. at 258 n.2.30

NationsBank marked a watershed in construing the term “business of banking,” resolving

an analytical dispute that had sharply divided courts of appeals for two decades. On one side of

the divide, the D.C. Circuit had prefigured NationsBank by rejecting a narrow interpretation of

Section 24(Seventh), instead deferring to the “expert financial judgment” of the Comptroller.

Am. Ins. Ass’n v. Clarke, 865 F.2d 278 (D.C. Cir. 1988) (municipal bond insurance part of the

business of banking). On the other side of the divide, two courts of appeals had adopted a more

restrictive test limiting the scope of permissible powers to those related to the enumerated

powers in Section 24(Seventh). See M&M Leasing Corp. v. Seattle First Nat’l Bank, 563 F.2d

1377, 1382 (9th Cir. 1977) (power “must be ‘convenient or useful’ in connection with the

performance of one of the bank’s established activities pursuant to its express powers under the

National Bank Act”) (equipment leasing); Arnold Tours, Inc. v. Camp, 472 F.2d 427, 431 (1st

Cir. 1972) (test is whether the activities were “directly related to one or another of a national

bank’s express powers”) (travel agency not authorized).31 NationsBank rejected that test,

30 This analysis resolved the preexisting question whether there is a distinction between “business of banking” and “all such incidental powers as shall be necessary to carry on the business of banking.” Before NationsBank, there were active questions whether a given power was “part of” the business of banking or “incidental to” the business of banking. By equating the section 24(Seventh) text with the “business of banking,” NationsBank established that it is a unitary inquiry. 31 Two other courts of appeals did not definitively endorse or reject the Arnold Tours test: First Nat’l Bank of Eastern Arkansas v. Taylor, 907 F.2d 775, 777-778 (8th Cir. 1990) (debt cancellation contracts); Sec. Indus. Ass’n v. Clarke, 885 F. 2d 1034, 1048 (2d Cir. 1989) (mortgage pass-through certificates.)


28

implicitly superseding Arnold Tours, M&M Leasing,32 and other decisions that had relied upon

them. Accordingly, the reasoning of any “business of banking” decisions that preceded

NationsBank is subject to reconsideration in light of its holding.33

2. The D.C. Circuit Has Confirmed the OCC’s Authority To Issue A Limited Purpose National Bank Charter

Just as the OCC was afforded deference in NationsBank in broadly interpreting the

general powers of national banks under the “business of banking,” the OCC has received

deference in defining narrowly the scope of a particular national bank’s powers in a case that

strongly supports the Comptroller’s authority to charter a special purpose national bank, and by

extension, to codify that authority in 12 C.F.R. § 5.20(e)(1). Indep. Cmty. Bankers Ass’n of

South Dakota, Inc. v. Bd. of Governors of the Fed. Reserve Sys., 820 F.2d 428 (D.C. Cir. 1987),

cert. denied, 484 U.S. 1004 (1988) (“ICBA v. FRB”). In a chartering decision made long before

the amendment of Section 5.20(e)(1), the OCC issued a limited purpose national bank charter,

upheld by the D.C. Circuit, authorizing a national bank to exercise limited powers so as to

comply with state law to enable it to engage in interstate banking under the Bank Holding

Company Act (the “BHCA”). At the time, the BHCA accorded states some control over the

ability of bank holding companies to acquire a national bank in a state other than the bank’s

home state.34 820 F. 2d at 430-431. Then-applicable South Dakota law limited the operations of

32 While the NationsBank holding displaced the test applied by M&M Leasing, NationsBank fully vindicated the policy observation articulated in M&M Leasing: “the powers of national banks must be construed so as to permit the use of new ways of conducting the very old business of banking.” M&M Leasing Corp., 563 F.2d at 1382. 33 As discussed below, one such case is Indep. Bankers Ass’n of Am. v. Conover, 1985 U.S. Dist. Lexis 22529 (M.D. Fla. 1985), which is cited by CSBS. 34 Issues related to interstate banking were later largely resolved by 1994 legislation: the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.


29

such national banks, in particular the deposit-taking function, in order to protect state-chartered

institutions from competition. Id. at 431.

ICBA v. FRB, a suit against the Federal Reserve Board, involved challenges to actions by

the Federal Reserve Board and (embedded within the same petition) the OCC: 1) the Federal

Reserve Board’s approval of the acquisition of a South Dakota-based national bank, newly

created to carry out the credit card business of a Texas-based bank holding company; and 2) the

OCC’s issuance of a charter to that credit card national bank35 with powers limited to conform to

the South Dakota restrictions.36 The D.C. Circuit noted that the Comptroller’s decision to charter

the limited purpose bank built upon a prior OCC chartering decision reflected in a Federal

Reserve order, Citicorp, 67 Fed. Res. Bull. 181 (1982). There, the Comptroller had noted that

the grant of authority to national banks under Section 24(Seventh) is “permissive, rather than

mandatory,” and that a national bank “rarely contemplates engaging in the full range of

permissible activities.” 820 F.2d. at 439. The Comptroller assessed that the decision to operate

as a limited service bank so as to avoid conflict with a state statute is “a business decision.” Id.

Among the arguments made by the ICBA against the validity of the Federal Reserve’s

decision was that there is “no such institution as a ‘special purpose’ national bank,” and that the

limited national bank charter was otherwise inconsistent with federal law. 820 F. 2d at 438-40.

35 The Charters Booklet describes credit card banks as “institutions whose primary business line is the issuance of credit cards, the generation of credit card receivables, and activities incidental to that line of business. Some credit card banks may have other lines of business but they are not generally material to the bank.” Ex. B at 51. 36 The national bank charter application at issue in ICBA v. FRB, while proposing the primary activity of the new bank to be credit card services, also proposed to provide limited deposit-taking, lending, and checking services to the local community to the extent permitted under state law. 820 F.2d at 439. There is nothing in the reasoning of the D.C. Circuit opinion that placed any weight on the existence of those nominal activities.


30

The D.C. Circuit rejected those arguments and held the limited purpose bank charter to be within

the Comptroller’s “particular expertise.”

We have no doubt but that the Comptroller’s construction and application of the National Bank Act in this context is reasonable. There is nothing in the language or legislative history of the National Bank Act that indicates congressional intent that the authorized activities for nationally chartered banks be mandatory. Restriction of a national bank’s activities to less than the full scope of statutory authority conflicts with the purposes of the Act only if it undermines the safety and soundness of the bank or interferes with the bank’s ability to fulfill its statutory obligations. That judgment requires consideration of the particular legal and business circumstances of the individual banks—a judgment within the particular expertise of the Comptroller and reserved to his chartering authority.

820 F.2d at 440. Accordingly, the reasoning of ICBA v. FRB supports the OCC’s authority to

promulgate Section 5.20(e)(1) and illustrates that the legal concept of a special purpose national

bank power is not novel or unprecedented, but rather follows a decades-old OCC practice.37

B. Under Chevron Step II, the OCC Reasonably Interpreted the Statutory Term “Business of Banking” by Reference to Three Core Banking Activities Identified in the National Bank Act

In considering the adoption of Section 5.20(e)(1), see supra pp. 6-7, the OCC weighed

the ways in which to give content to the statutory term “business of banking” in determining

eligibility for a national bank charter.38 The OCC’s Final Rule provided, “A special purpose

37 Shortly after ICBA v. FRB was decided in June 1987, Congress amended the Bank Holding Company Act to create an exception from the definition of “bank” applicable to credit card banks. Competitive Equality Banking Act of 1987, Pub. L. No. 100-86, 101 Stat. 552 (August 10, 1987) codified at 12 U.S.C. § 1841(c)(2)(F). There is no corresponding statutory chartering authority for credit card banks in the National Bank Act. Instead, the OCC has chartered credit card banks relying on the inherent authority endorsed in ICBA v. FRB. 38 The regulation recites that the statutory authority for the chartering regulation generally includes 12 U.S.C. §§ 21, 24(Seventh), 26 and 27, each of which includes a reference to “the business of banking.”


31

bank that conducts activities other than fiduciary activities must conduct at least one of the

following three core banking functions: receiving deposits; paying checks; or lending money.”

12 C.F.R. § 5.20(e)(1). In its Complaint, CSBS objects to Section 5.20(e)(1), arguing that it is

unreasonable on policy and historical grounds for the OCC not to require deposit-taking as a

necessary activity for a national bank. To the contrary, historical understanding and caselaw

support the reasonable choices made by the OCC in interpreting the “business of banking” in a

manner reflected by the regulation in its current form.

In the preamble to the Final Rule that promulgated 12 C.F.R. § 5.20(e)(1) in 2003, the

OCC explained that it added the “core banking activities” requirement by reference to 12 U.S.C.

§ 36, which defines a national bank “branch” as a branch place of business “at which deposits are

received, or checks paid, or money lent.” 12 U.S.C. § 36(j).39 While Section 36 does not include

the term “business of banking,” the OCC looked for guidance to a Supreme Court decision

construing the statutory phrase the “general business of each national banking association” in 12

U.S.C. § 81 by reference to the core activities of Section 36. Clarke v. Sec. Indus. Ass’n

(“Clarke v. SIA”), 479 U.S. 388 (1987). Section 81 restricts the locations at which a national

bank may conduct business. “The general business of each national banking association shall

be transacted in the place specified in its organization certificate and in the branch or branches, if

any, established or maintained by it in accordance with the provisions of [12 U.S.C. § 36].”

12 U.S.C. § 81 (emphasis added). The close textural resemblance of “the business of banking”

39 “The term ‘branch’ as used in this section shall be held to include any branch bank, branch office, branch agency, additional office, or any branch place of business located in any State or Territory of the United States or in the District of Columbia at which deposits are received, or checks paid, or money lent. The term ‘branch,’ as used in this section, does not include an automated teller machine or remote service unit.” 12 U.S.C. § 36(j).


32

to the “general business” of each bank supports the OCC’s reliance upon Clarke v. SIA to

connect the “core activities” of Section 36 to the OCC’s chartering authority.

In Clarke v. SIA, the OCC had approved a national bank’s application to offer discount

brokerage services at, inter alia, non-branch locations both inside and outside the bank’s home

state. A securities trade association challenged the approval, arguing that the phrase “general

business” of each banking association in Section 81 should be read more broadly than the

Section 36 activities to include all activities statutorily authorized for national banks, including

the sale of securities, which would therefore limit where such sales could be conducted. 479

U.S. at 406. The Supreme Court rejected that argument. The Court noted that the phrase “the

general business of each national banking association” is ambiguous and held the Comptroller’s

interpretation entitled to deference. 479 U.S. at 403-04. The Court observed that national banks

engage in many activities, and there was no evidence that Congress intended all of those

activities to be subject to the geographical limitations of Sections 81 and 36. 479 U.S. at 406-09.

Instead, the Court found reasonable the OCC’s conclusion that the general business of the bank

under Section 81 included only “core banking functions,” and not all incidental services that

national banks are authorized to provide. 479 U.S. at 409. The Court also held that the OCC

reasonably equated “core banking functions” with the activities identified in Section 36, which

defined “branch” as any place “at which deposits are received, or checks paid, or money lent.”

Id.

The Court’s endorsement of the OCC’s analysis — that national banks engage in many

activities, but that only these three activities represent “core banking functions” and so define the

“general business” of the bank — provides support for treating any one of these same three

activities as the required core activity for purposes of the chartering provisions. Just as the


33

“general business” of each national bank is undefined in the location restriction of Section 81,

the “business of banking” is undefined in the chartering provisions of Sections 21 and 27(a).

The natural reading of the two phrases is similar in meaning, which supports the reasonableness

of using the common source of Section 36(j) for the interpretation of each. Because the terms of

Section 36 are linked by “or,” performing only one of the activities is sufficient to meet the

statutory definition and to cause the location restrictions to apply.40 This interpretation provides

symmetry and consistency between the chartering and the location provisions of the National

Bank Act.41

VI. CSBS FAILS IN ITS ARGUMENTS THAT THE OCC LACKS STATUTORY AND CONSTITUTIONAL AUTHORITY TO ISSUE A SECTION 5.20(e)(1) CHARTER

The CSBS Complaint outlines a variety of arguments against the OCC’s proposed use of

Section 5.20(e)(1) to charter as a national bank an entity that does not take deposits, including

arguments predicated on policy, statutes other than the National Bank Act, caselaw, the

40 Because the “activities” element of the definition “is written in the disjunctive, the offering of any one of the three services will provide the basis for finding that ‘branch’ banking is taking place.” First Nat’l Bank in Plant City v. Dickinson, 396 U.S. 122, 135 (1969). 41 The requirements in 12 U.S.C. § 22 for the content of a bank’s organization certificate do not alter this conclusion. Part of the process of forming a new national bank includes the execution of an “organization certificate” by the bank’s organizers. The certificate recites basic information (such as the name of the bank, its location, the amount of stock, and the names of initial shareholders). See 12 U.S.C. §§ 21 – 23. The location provision requires the certificate to include “the place where its operations of discount and deposit are to be carried on.” 12 U.S.C. § 22(Second). Historically, the reference to operations of “discount” and “deposit” would have fixed the city where these two functions, traditionally requiring repeated retail contact with bank customers, would take place. Functionally, the provision served to specify where the main office of the bank would be located. In any event, the provision does not mandate the performance of those activities, but rather simply requires identification of the place where any such activities would be conducted.


34

legislative history of the National Bank Act, historical practice, and the Constitution. None of

these arguments can be sustained.

CSBS’s central thesis, that the OCC’s statutory authority under 12 U.S.C. § 27(a) to charter

an entity to “commence the business of banking” does not extend to authority to charter a

national bank that does not accept deposits, Compl. ¶¶ 6, 7, 65, 77-82, is contrary to the Supreme

Court (NationsBank; Clarke v. SIA) and D.C. Circuit (ICBA v. FRB) authority discussed above.

CSBS’s expressio unius argument that principles of statutory construction applied to the

chartering provisions at 12 U.S.C. § 27(a), (b) and the definition of “bank” for purposes of the

Bank Holding Company Act at 12 U.S.C. §1841(c)(2)(D) and (F) yield the result that special

purpose charters require express statutory authorization, Compl. ¶¶ 38-41, cannot be sustained in

light of the statutory structure and history of Section 27 and the rejection of an analogous

argument by the Supreme Court in NationsBank. CSBS’s statement that the legislative history of

the National Bank Act identifies receiving deposits as an essential function, Compl. ¶ 31, fails to

offer a citation to authority to support that proposition. The 19th and 20th century Supreme Court

cases that CSBS cites for the proposition that receiving deposits is essential to the business of

banking, Compl. ¶ 32, did not directly address that issue. The two district court opinions cited

by CSBS for the proposition that a bank that does not receive deposits is not in the “business of

banking,” Compl. ¶¶ 32, 40, 42-43, quickly ceased to be viable law and have since been

superseded by legislation or subsequent Supreme Court authority. The provisions of non-

National Bank Act statutes such as the Bank Holding Company Act relied upon by CSBS,

Compl. ¶¶ 33-37, 43, have no bearing upon the OCC’s interpretation of the National Bank Act.

Historical sources do not yield the conclusion that deposit-taking is a function indispensable to

the definition of the “business of banking,” Compl. ¶ 32, but show instead that 19th Century


35

authority recognized a variety of functions that could be, or need not be, performed by a “bank.”

Finally, long-established Supreme Court authority, reiterated in 2007, defeats CSBS’s appeal to

the Supremacy Clause and the Tenth Amendment. Compl. ¶¶ 115-121.

A. CSBS’s Statutory Construction Arguments Lack Merit

1. Judicial Authority And Statutory Context Defeat CSBS’s Expressio Unius Argument

CSBS cannot sustain its argument that the expressio unius canon of statutory construction

yields the result that the specific legislation allegedly authorizing or recognizing the chartering of

special purpose national banks – trust banks, banker’s banks, and credit card banks – creates an

inference that Congress intended to withhold inherent special purpose chartering authority from

the OCC. CSBS Compl. ¶ 79. First, the text of Section 27 does not reflect the structural pattern

that triggers the canon’s application. “As we have held repeatedly, the canon expressio unius est

exclusio alterius does not apply to every statutory listing or grouping; it has force only when the

items expressed are members of ‘an associated group or series,’ justifying the inference that

items not mentioned were excluded by deliberate choice, not inadvertence.” Barnhart v.

Peabody Coal Co., 537 U.S. 149, 168 (2003); see U.S. v. Vonn, 535 U.S. 55, 65 (2002).42 No

such inference is available for Section 27, where the provisions do not present a like series, but

are different in kind: a general chartering authority, a specific chartering authority (banker’s

banks) and a ratification of charters issued under unspecified authority (trust banks). Moreover,

because the general chartering authority dates from 1864, the recognition of trust banks was

42 “The maxim generally has force only when the items expressed are members of an associated group or series, justifying the inference that items not expressed were excluded by deliberate choice.” 2A Sutherland Statutory Construction § 47:25.


36

added by legislation in 1978,43 and the authority for banker’s banks was added in 1982, the

structure of the statute is not the product of a single Congress to which any intent can be

attributed. The distinct provisions instead reflect discrete legislation by different Congresses,

widely separated in time, responding to disparate reasons for legislation. “The possibilities

either of [congressional] neglect or of implied delegation to the agency grow more likely as the

contrasted contexts grow more remote from each other.” Clinchfield Coal Co. v. Fed. Mine

Safety & Health Review Comm’n, 895 F.2d 773, 779 (D.C. Cir. 1990). “The canon can be

overcome by ‘contrary indications that adopting a particular rule or statute was probably not

meant to signal any exclusion.’” Marx v. General Revenue Corp., 133 S. Ct. 1166, 1175 (2013).

Additionally, because the canon of expressio unius is inherently statute-specific, no

meaningful inference can be drawn from the provisions of non-National Bank Act statutes such

as the credit card bank exception in the BHCA. See 12 U.S.C. § 1841(c)(2)(F).44 Finally, in

NationsBank, as discussed supra pp. 25-28, the Supreme Court rejected an implicit expressio

unius argument with respect to the enumerated express powers in Section 24(Seventh) that, “as

an associated group or series,” would more plausibly satisfy the legislative pattern associated

43 The trust bank provision in section 27(a) was enacted in 1978 after a district court had held that the OCC did not have authority to charter a limited purpose trust bank. See Nat’l State Bank of Elizabeth, N.J. v. Smith, No.76-1479 (D.N.J. 1977), rev’d on other grounds, 591 F.2d 223 (3d Cir. 1979) (discussed below). The trust bank text in part retroactively ratified previously issued charters. This text therefore must be read as a post-hoc congressional endorsement of the OCC’s inherent authority to issue special purpose charters. 44 Indeed, the BHCA exception for credit card banks in 12 U.S.C. § 1841(c)(2)(F) is at odds with CSBS’s theory of the case because there is no corresponding chartering authority for credit card banks in the National Bank Act. Notwithstanding the absence of any such specific National Bank Act authorization for credit card banks, the OCC has chartered such credit card banks and has been sustained in so doing. See discussion of ICBA v. FRB supra. Credit card banks, therefore, stand as a counterexample to CSBS’s argument that special purpose charters require specific statutory authority.


37

with application of the canon than does the structure of Section 27. For all these reasons specific

to the statutory text and structure, CSBS cannot sustain its expressio unius argument.45

2. CSBS Errs in Relying On Statutes Other than the National Bank Act

CSBS errs in its attempts to extract meaning from the provisions of non-National Bank

Act statutes addressing “bank” or “banking” for interpretation of the National Bank Act. As a

matter of statutory interpretation, these arguments are meritless because it is well settled that the

meaning of the same term, let alone similar terms, across different statutes may vary “to meet the

purposes of the law.” U.S. v. Cleveland Indians Baseball Co., 532 U.S. 200, 213, 218-20 (2001)

(ambiguities in identical statutory terms should not be resolved identically regardless of their

surroundings; instead, deference is due to agency’s interpretations); see also Yates v. U.S., 135 S.

Ct. 1074, 1082 (2015) (“We have several times affirmed that identical language may convey

varying content when used in different statutes, sometimes even in different provisions of the

same statute.”) (collecting cases); Gen. Dynamics Land Sys., Inc. v. Cline, 540 U.S. 581, 595

(2004) (also rejecting the presumption of uniform usage of statutory terms).

Contrary to CSBS’s suggestion, there is no aspect of the BHCA that defines the term

“business of banking” as it appears in the general chartering authority of the National Bank Act

in Section 27(a). The provisions defining the term “bank” found in the BHCA at 12 U.S.C.

§ 1841(c)(1) have the purpose of identifying which entities will cause their controlling

45 More generally, the Supreme Court and the D.C. Circuit have repeatedly expressed caution in the application of the canon, especially in an administrative context. “The expressio unius canon is a ‘feeble helper in an administrative setting, where Congress is presumed to have left to reasonable agency discretion questions that it has not directly resolved.’” Adirondak Medical Ctr. v. Sebelius, 740 F.3d 692, 697 (2014), quoting Cheney R.R. Co. v. ICC, 902 F.2d 66, 68-69 (D.C. Cir. 1990); see also Mobile Commc’n Corp. of Am. v. FCC, 77 F.3d 1399, 1404-05 (maxim, unsupported by arguments based on the statute’s structure and legislative history, “too thin a reed” to support the conclusion that Congress had clearly resolved the issue); Martini v. Fed. Nat’l Mortg. Ass’n, 178 F. 3d 1336, 1343 (D.C. Cir. 1999) (same).


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organization to become subject to regulation as “bank holding companies.” Accordingly, that

definition serves a legislative purpose very different from the chartering provisions of the

National Bank Act and provides no meaning as to the functions necessary to qualify as the

“business of banking” in Section 27.

B. The Judicial Authority Cited by CSBS Is Not Entitled to Weight

CSBS errs in relying on two subsequently superseded district court cases in 1979 and

1985 for the proposition that the OCC lacks authority to charter a limited-purpose national bank.

In Nat’l State Bank of Elizabeth, N.J. v. Smith, No. 76-1479 (D.N.J. 1977), the OCC issued a

charter to a national bank limited to the business of a commercial bank trust department and

related activities. Nat’l State Bank of Elizabeth, N.J. v. Smith, 591 F.2d 223, 227 (3d Cir. 1979).

The district court concluded that the charter was “contrary to law and invalid,” though the

reasoning supporting that conclusion is unreported. Id. at 228. After the district court decision,

and during the appeal, Congress amended 12 U.S.C. § 27(a) to recognize trust banks,

retroactively and going forward. Id. at 231. On appeal, the Third Circuit reversed the district

court, applying the terms of the newly amended Section 27(a), declining to address the

correctness of the district court decision when entered, and opining that the legislation had

“validated the Comptroller’s action.” 591 F.2d at 231-32. Accordingly, this district court

decision ceased to have any force and effect in 1979, did not receive an endorsement on the

merits from the Third Circuit, and is unentitled to weight in this Court.

In Indep. Bankers Ass’n of Am. v. Conover, 1985 U.S. Dist. Lexis 22529 (M.D. Fla.

1985) (“Conover”), banks and trade associations challenged the OCC’s authority under Section

27(a) to charter “nonbank banks,” banks limited so that they would either not accept demand

deposits or make commercial loans, or both, so as to avoid the definition of “bank” in the BHCA


39

and attendant restrictions on interstate operations. Id. at *2.46 In awarding the plaintiffs a

preliminary injunction against final approval of a nonbank bank charter, the court disapprovingly

characterized nonbank banks as taking advantage of a statutory definition to structure themselves

so as to “escape regulation” under the BHCA, id. at *3, and in determining that the plaintiffs had

a likelihood of success on the merits, the court looked to the “historical understanding in law and

custom” of the term “business of banking.” Id. at *23.

Conover is not good law. First, the ruling in Conover was an interim preliminary

injunction order that was subsequently vacated when the case was dismissed before final

judgment. See Docket Entry No. 137, dated Sept. 11, 1987 (attached hereto as Exhibit K).

Moreover, the analysis in Conover is in substantial conflict with the later decision of the D.C.

Circuit in ICBA v. FRB, discussed above, as to the OCC’s authority to issue a limited purpose

charter, and in conflict with the expansive test for “business of banking” established in

NationsBank, as discussed above. Additionally, a Supreme Court decision the year following

Conover discounted the “intentional avoidance of regulation” justification partly relied upon in

Conover to issue an injunction. Bd. of Governors of the Fed. Reserve Sys. v. Dimension Fin.

46 “Nonbank banks” were national banks that refrained from engaging in either accepting demand deposits or making commercial loans or both in order to avoid coming within the definition of “bank” under the BHCA. Such nonbank banks were “banks” within the meaning of the National Bank Act, the Federal Reserve Act, the Federal Deposit Insurance Act, and other federal statutes, and supervised accordingly, but were not banks for BHCA purposes. This structure had business utility in that nonbank banks could be owned by a company without it becoming regulated as a bank holding company, and a nonbank bank could avoid then-existing geographic limits applicable only to a “bank” under the BHCA. Ultimately, the issues were resolved when Congress passed the Competitive Equality Banking Act of 1987, Pub. L. No. 100-86, 101 Stat. 552 (August 10, 1987), which expanded the definition of “bank” under the BHCA, but added exceptions so that some institutions would remain nonbanks under the BHCA, while continuing to be treated as banks under other statutory regimes. See generally Fein, Federal Bank Holding Company Law § 5.02[2][g] (3d ed. 2017).


40

Corp., 474 U.S. 361 (1986) (rejecting Federal Reserve Board’s argument that its expansive

regulation was justified to prevent exploitation of statutory loopholes). Because the district court

opinion never reached final judgment, because it is in conflict with a later decision by the D.C.

Circuit, and because parts of its rationale were superseded by legislation and by the Supreme

Court decisions in NationsBank and Dimension, the Conover opinion is not entitled to weight in

this Court.

C. Neither the Legislative History of the National Bank Act Nor Historical Understanding Contradicts the OCC’s Interpretation

CSBS invokes “industry custom” and historical practice47 in a futile attempt to establish

that the OCC is not authorized to charter a bank that does not take deposits. History untethered

from the National Bank Act, however, cannot establish a plain meaning for the term “business of

banking” or render the OCC’s interpretation unreasonable for Chevron purposes. In any event,

the historical understanding of banking and, more saliently, the understanding nearly

contemporaneous with the National Bank Act, do not support CSBS’s position. Although the

National Bank Act contains no definition of “bank” or “business of banking,” Congress passed

legislation in 1866 that did define the term “bank” for the purposes of amendments to an 1864

tax statute. See Internal Revenue Act of 1866, ch. 184, 14 Stat. 98 (1866). For the purposes of

application of a tax on bank capital, Congress legislated that “bank” would mean:

Every incorporated or other bank, and every person, firm, or company having a place of business where credits are opened by the deposit or collection of money or currency, subject to be paid or remitted upon draft, check, or order, or where money is advanced or loaned on stocks, bonds, bullion, bills of exchange, or promissory notes, or where stocks, bonds, bullion, bills of

47 The Complaint also refers to the legislative history of the National Bank Act, but provides no citations in support, instead referring to a National Bank Act statutory provision, addressed supra pp. 25-28. See Compl. ¶ 31.


41

exchange, or promissory notes are received for discount or for sale, shall be regarded as a bank or as a banker. . . .

Id. at 115. This definition recognizing various forms of non-deposit taking entities as a “bank”

refutes CSBS assertion that the Congress of the 1860s understood deposit-taking to be a

necessary function of either a bank generally or of a national bank chartered pursuant to Section

27.48

Six years later, the Supreme Court had occasion to consider the scope of a statutory

exception to another tax provision applicable to banks contained in the Internal Revenue Act of

1866 in Oulton v. German Savings & Loan Society, 84 U.S. 109 (1872) (Clifford, J.). In support

of its decision that a savings and loan was a “bank” within the meaning of the statute, the Court

stated that an institution is a bank “in the strictest commercial sense” if it engages in only one of

the three functions of deposit taking, discounting, or circulation. Id at 118-19. (“Banks in the

commercial sense are of three kinds, to wit: 1, of deposit; 2, of discount; 3, of circulation.

Strictly speaking the term bank implies a place for the deposit of money, as that is the most

obvious purpose of such an institution . . . . Modern bankers frequently exercise any two or even

all three of those functions, but it is still true that an institution prohibited from exercising any

more than one of those functions is a bank . . . .”).

The cases cited by CSBS for historical understanding, Compl. ¶ 32, do not consider, let

alone answer, the question of whether a bank must accept deposits or perform any other

particular core function to be chartered as a national bank or to be otherwise considered a bank in

a more general sense. See Mercantile Nat’l Bank v. City of N.Y., 121 U.S. 138, 156 (1887)

48 This 1866 statutory definition is further authority contrary to CSBS’s allegations, Compl. ¶¶ 33-37, that because certain definitions of bank in other parts of the U.S. Code require deposit taking, so must 12 U.S.C. Section 27. See supra pp 37-38.


42

(discussing various aspects of the business of banking and their relation to the term “moneyed

capital” in tax statute); U.S. v. Philadelphia Nat’l Bank, 374 U.S. 321, 326 (1963) (delineating

relevant product market in antitrust banking cases).

D. Neither Section 5.20(e)(1) Nor any Charter Issued Under Section 5.20(e)(1) in the Future Would Violate the Supremacy Clause or the Tenth Amendment

In the 153-year history of the national bank system, it has been repeatedly established

that the Supremacy Clause operates in concert with the National Bank Act to displace state laws

or state causes of action that conflict with federal law or that prevent or significantly interfere

with national bank powers. See, e.g., Barnett Bank of Marion Co. v. Nelson, 517 U.S. 25 (1996);

Franklin Nat’l Bank v. New York, 347 U.S. 373 (1954). As a federal regulation, Section

5.20(e)(1) preempts contrary state law. See, e.g., Smiley v. Citibank (South Dakota), 517 U.S.

735 (1996); Fidelity Fed. Sav. & Loan Ass’n v. De La Cuesta, 458 U.S. 141 (1982). Under these

lines of authority, a fintech chartered as a national bank under Section 5.20(e)(1) would be

entitled to the protections of the National Bank Act against state interference.

It bears repeating that the entire legislative scheme is one that contemplates the operation of state law only in the absence of federal law and where such state law does not conflict with the policies of the National Bank Act. So long as he does not authorize activities that run afoul of federal laws governing the activities of national banks, therefore, the Comptroller has the power to preempt inconsistent state law.

CSBS v. Conover, 710 F.2d 878, 885 (D.C. Cir. 1983).

The Tenth Amendment is not implicated when the Constitution assigns authority to the

federal government. “If a power is delegated to Congress in the Constitution, the Tenth

Amendment expressly disclaims any reservation of that power to the States.” Watters v.

Wachovia Bank, N.A., 550 U.S. 1, 22 (2007). “Regulation of national bank operations is a

prerogative of Congress under the Commerce and Necessary and Proper Clauses.” Id.


43

Accordingly, the Tenth Amendment has no application to either Section 5.20(e)(1), or to the

proposed special purpose charter.

CONCLUSION

For the reasons stated above, the OCC asks the Court to dismiss the Complaint on all

counts for lack of jurisdiction and, in the alternative, for failure to state a claim upon which relief

may be granted.

Date: July 28, 2017 Respectfully submitted,

/s/ AMY S. FRIEND

CHARLES M. STEELE KAREN SOLOMON GREGORY F. TAYLOR DOUGLAS B. JORDAN PETER C. KOCH ASHLEY W. WALKER GABRIEL A. HINDIN Office of the Comptroller of the Currency 400 7th Street S.W. Washington, D.C. 20219 (202) 649-6300 – phone (202) 649-5709 – fax [email protected] [email protected] [email protected] [email protected] [email protected] Attorneys for Defendants


CERTIFICATE OF SERVICE

In accordance with LCvR 5.3, I certify that on July 28, 2017, a true and correct copy of

the foregoing Memorandum of Points and Authorities In Support Of Defendants’ Motion to

Dismiss For Lack Of Jurisdiction and Failure to State a Claim was served on all counsel of

record through the Court’s CM/ECF system.

Respectfully submitted,

/s/

DOUGLAS B. JORDAN Senior Counsel DC Bar 364398 Litigation Division Office of the Comptroller of the Currency 400 7th Street SW Washington, DC 20219 [email protected] Attorneys for Defendants


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